Enlisting in the Military Increases Earnings, But Only If You Stick Around

A new RAND research report prepared for the U.S. Army explores the effect of military enlistment on individual earnings and the labor market. The authors used data from applicants to “active-component enlisted service” from 1989 through 2003, and followed them for up to 18 years. From the report:

Each year, more than 150,000 young men and women enlist in the active component of the U.S. military. The experience of these enlistees while serving their country will undoubtedly influence their long-run labor market outcomes, but just how is not well understood. The research described in this report seeks to estimate the causal effect of military enlistment on labor market earnings and educational attainment as many as 18 years following enlistment.
The authors find that military enlistment increases earnings in both the short and long-term: The percentage increase in earnings attributable to enlistment is about 40 percent in the first few years following application and diminishes to about 11 percent 14–18 years following application. Enlistment significantly delays college education in the short run. In the longer run, enlistment slightly increases the likelihood of attaining a two-year college degree, but it also decreases the likelihood of attaining a four-year college degree, especially among higher-aptitude youth.

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The study finds that there are three main time periods in a soldier’s earnings. The first is when the applicant is still serving in the military, and completing active service – this period has a positive economic effect. However, in the years after enlistment most applicants don’t go straight into full-time employment. Whether it’s due to college or something else, this second period sees a drop in earnings. In the third period, earnings are positive again.
The most puzzling result is the 11% bump in long-term military earnings compared to civilian workers. It’s not education gains, but rather labor gains:

“(1) military service develops other skills that are valued in the labor market and (2) the military pays above-average wages in order to compensate individuals for their sacrifice and service (a “compensating wage differential”). We do not directly test these alternative hypotheses, but we do find that the positive effect of enlistment on longer-run earnings is concentrated among enlistees who are still serving in the active component.”

So, staying long-term in the military creates a much higher income for the average soldier due to above-average wages, but soldiers who leave active service still have about a 6% advantage compared to their civilian counterparts, according to the data.
The study concludes that for most enlisted soldiers, military service does provide benefits for long-term earnings. However, those benefits are far greater for soldiers who choose to stay in the military.
Can these effects be viewed in unemployment data? Perhaps. Among what the Labor Department refers to as the Gulf Era II generation, those who served in the military at any time since September 2001, the unemployment rate is 11.5%. But among the older Gulf Era I generation, the rate is 7.7%.