RAND Study Finds Most Military Reservists See Income Rise When Called to Active Duty

For Release

Wednesday
January 25, 2006

Most U.S. military reservists called to active duty in 2003 have seen their earnings rise, contradicting the perception that reservists generally lose income when called to service, according to a RAND Corporation study issued today.

A review of pay records among a sample of reservists called to active duty found that 72 percent experienced pay increases, with the income boost averaging 25 percent over what they earned when not serving on active duty. The income increase averaged about $10,000 per year.

However, RAND researchers also found that 28 percent of the reservists studied lost pay after being called to active duty. About 20 percent of the reservists studied lost 10 percent or more of their normal income.

The RAND study found that average earnings gains increase and the percentage of reservists who suffer an earnings loss declines with active duty days served. For example, reservists who served on active duty for 270 days or more in a year saw their earnings increase by an average of 44 percent over their normal pay, according to the RAND study. About 17 percent of reservists who serve on active duty for a similar duration lost earnings, with 11 percent losing 10 percent or more of their normal wages.

“Our findings contradict the prevailing belief that most reservists lose pay when called to active duty,” said Jacob Klerman, a RAND senior economist and lead author of the study. “But there is a group of reservists who experience a drop in income when activated.”

Klerman noted, however: “Even for reservists whose earnings rise when activated, the increase in earnings might not be sufficient to compensate them for the hardships of active duty service, like being away from family and in harm’s way.”

A May 2004 survey of reservists by the Department of Defense found that 51 percent reported an earnings loss, including 44 percent who reported a drop of 10 percent or more and 21 percent who reported an income loss of 20 percent or more.

Some of the difference appears to be due to a different definition of income. The RAND study accounts for the fact that military allowances and pay received while serving in a combat zone are not subject to federal taxes. The Department of Defense survey, on the other hand, specifically instructs reservists to report before-tax income.

Moreover, the Department of Defense study included only reservists who responded to the voluntary survey, so the results may not be representative of all reservists, according to the RAND report.

Since undertaking the Global War on Terrorism, a large proportion of America’s reserve military forces have been activated at least once, with many tours of duty lasting more than a year.

The intense use of reserve forces has raised concerns that many reservists may suffer substantial financial losses after being activated. Those concerns have led to proposals to boost reservist compensation, including higher pay and improved retirement benefits.

RAND researchers examined the issue by reviewing the pay records of more than 110,000 Army and Air Force reservists called to active duty during 2001 and 2002.

Pay information (for groups of reservists, to preserve confidentiality) was received from the Social Security Administration (for civilian pay) and from the Department of Defense. Military income measures examined by RAND researchers included all pay and allowances, as well as a calculation of the value of the tax advantage accorded some military compensation.

The earnings measures employed in the RAND study do not account for salary that reservists may continue to receive from their civilian jobs, retirement pay, health care and other benefits of military service.

The RAND report provides the first findings from an ongoing study that is looking at reservist compensation. Ongoing research uses more comprehensive information to generate more refined estimates of how activation impacts the earnings of reservists. Although not final, the results of that study confirm the central findings of the report released today.

The study was conducted for the Office of the Secretary of Defense-Reserve Affairs by the Forces and Resources Policy Center of the RAND National Defense Research Institute (NDRI). The research was carried out within the RAND National Security Research Division, which conducts research and analysis for the Defense Department, the Joint Staff, the Unified Commands, defense and intelligence agencies, allied foreign governments and foundations.

Printed copies of “Early Results on Activations and the Earnings of Reservists” (ISBN: 0-8330-3819-2) can be ordered from RAND Distribution Services (order@rand.org or call toll-free in the United States 1-877-584-8642).

About RAND

RAND is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous.