Wage Growth in the Civilian Careers of Military Retirees

Wage Growth in the Civilian Careers of Military Retirees iii PREFACE More than 20,000 individuals retire each year from the U.S. military who are eligible to receive a guaranteed annuity amounting to half or more of their basic military pay. Separating from the military at an average age of 43, the overwhelming majority of these retirees enter second careers in the civilian sector. This book seeks to answer three questions about the civilian labor market experience of military re-tirees: (1) How do the wages of military retirees upon separation compare with those of comparably experienced and educated civil-ians?; (2) Do military retirees enjoy higher relative wage growth over their second careers than their civilian peers?; and (3) Is the transition to civilian employment a difficult process for military retirees? Using a novel data set on military retirees—the 1996 Survey of Retired Military Personnel (SRMP)—this study finds that military re-tirees earn substantially lower wages than their civilian peers upon entering the civilian labor market. This finding holds even after controlling for a range of observable differences between military retirees and civilians. Moreover, this study finds that the wages of military retirees remain low relative to civilian wages even as they gain civilian labor market experience. While the study cannot tell us whether the low relative wages of military retirees is due to military service itself, the effect of retirement pay on effort exerted in the civilian labor market, or other unobserved differences between military retirees and civilians, it does provide a more complete picture of the civilian experience of military retirees than was previously available. The results of this study will be useful to readers who are thinking about the military retirement system as a force-shaping tool and iv Wage Growth in the Civilian Careers of Military Retirees those who are concerned more generally about the welfare of military retirees in their civilian lives. This study was conducted under the sponsorship of the Director of the 9th Quadrennial Review of Military Compensation (QRMC) in the Office of the Under Secretary of Defense for Personnel and Readiness. It was prepared within the Forces and Resources Policy Center of RAND's National Defense Research Institute (NDRI), a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the unified commands , and the defense agencies.