RAND Provides Perspective on Keeping Military Pay Competitive

Air Force recruiting photo
The Air Force Recruiting Service headquarters at Randolph Air Force Base, Texas (photo courtesy of the U.S. Air Force)

Attracting and keeping high-quality personnel has been a challenge for the military services during the past decade. At the same time, competition between the private sector and the military has intensified for just the same sort of high-aptitude high school graduates the services need to fulfill their visions of a technologically advanced future force. In response to growing concerns about military readiness and missed recruiting goals, Congress recently passed legislation to reform military retirement benefits and increase military pay. Many in the defense community expected that these changes would solve recent recruiting and manning problems, but the services are likely to face further challenges ahead.

For example, the recent economic boom has resulted in increased opportunity for young people making career choices. While economic growth now appears to be leveling off, the Bureau of Labor Statistics reported that the unemployment rate remained stubbornly low at 4.3% in March 2001. Another challenge to the military is the persistent rise in financial benefits and earning potential that young people experience when they choose to go to college. Finally, an increase in the level of involvement of the U.S. military around the world in humanitarian missions, peacekeeping efforts, and other operations requires an increase in the number of service personnel in order to maintain readiness.

Research Questions and Analysis 

In a recently released Issue Paper, RAND analysts James Hosek and Jennifer Sharp examined whether, given these factors, pay increases enacted by the FY 2000 legislation would be enough to help the services meet their recruiting and retention goals and whether budgets developed in accord with the increases would be enough to fulfill plans that require high-quality personnel.

To answer these questions, Hosek and Sharp looked at pay in two ways. First, they took the customary approach of comparing current military and civilian pay for persons with similar characteristics. This type of comparison, applied across all groups, allowed them to compute military/civilian pay gaps. However, current pay comparisons hold education constant and do not allow for the fact that many people return to college, even if they do not stay for four years. So the second pay comparison considered pay streams for different career paths that varied by occupation and level of education.

For both comparisons, the key was not the value of military versus civilian current pay or career earnings at a single point in time, but how their relative value has changed over time. The military has always had to offer a "premium" - higher than average pay - to attract the quantity and quality of personnel it needs, so the researchers' comparison was established to determine how that premium has risen or fallen relative to private-sector opportunities. To predict future wage growth, they analyzed wage data for full-time, full-year workers from Current Population Surveys for 1983-1998. Their wage analyses identified long-term wage trends, the cyclical effect of rising and falling unemployment, and wage differences across groups.

Findings and Results 

Their research showed that:

  • College has paid off. They found that while there has been little wage growth for high school graduates, big wage gains have come with four or more years of college for workers in professional and technical occupations, and forecasts indicate that these trends are likely to continue.

  • Junior Enlisted Pay Has Improved the Most. The researchers looked at historical and future pay gaps between military personnel and their counterparts in the private sector. In the 1980s and 1990s, military pay growth for enlisted personnel kept pace with or outpaced civilian pay growth, but pay growth for officers lagged civilian pay growth. In general, military pay rose relative to civilian pay during the economic slowdown at the beginning of the 1990s. During the economic expansion of the middle to late 1990s, however, civilian pay rose faster than military pay. This has contributed to the service's recruiting and retention difficulties.

  • The Changing Value of Military vs. Civilian Careers. Throughout the history of the volunteer force, it has been necessary to pay an above-average wage to attract enough high-quality recruits. So the analysis conducted by Sharp and Hosek emphasized not just levels of pay, but changes in military and civilian pay over time and their relation to each other. Men and women of officer caliber, they noted, can expect to earn more today in private-sector jobs than in the military, compared to their predecessors in the 1980s. At the same time, the decline in the present value of a career based on a high school education, the increase in the present value of a career based on four years of college compared with some college, and the increase in professional/technical occupational earnings has led to an increase in postsecondary enrollment. This suggests that since the services are already having trouble recruiting and retaining high-quality high school graduates who do not enroll in postsecondary institutions, recruiting and retaining those interested in higher education will be all the harder.

The growth of interest in higher education has left the services with the choice of trying harder to recruit from a shrinking pool of high-quality youth or figuring out how to accommodate what appears to be a fundamental shift towards higher education. Recruiters are just now beginning to shift their attention to the two-year college market. They are also providing generous education benefit packages and ways to attract college-bound youth. However, the researchers' findings point to the importance of some college as a step to more college, and recruiters should keep this in mind.

Clearly, the services must develop new ways to attract the college-bound market. They must also consider how to retain and manage the career paths of well-trained, technically skilled personnel who want access to the wealth of opportunities they can find through advanced education and private-sector careers. While pay increases are a positive step, meeting these career-oriented challenges will require broader, more sweeping changes.

For more information: The Issue Paper is available in its entirety online.