Working Paper: NBER ID: w18502
Authors: Jeffrey S. Smith; James E. West
Abstract: We use data from a natural experiment in which retirement benefits were reduced by congressional legislation and later restored to estimate the effect of future retirement benefit eligibility upon the decision of whether to remain in the U.S. military. We find that the generosity of retirement benefits is significantly correlated with the decision to remain in service until members qualify for benefits. The estimated effect of a 20 percent reduction in the generosity of retirement benefits upon the probability of remaining on active duty is equivalent to the effect of a 0.27 percentage point reduction in the unemployment rate, or approximately a 2 percent increase in the GDP growth rate.
Keywords: military retirement; officer retention; retirement benefits; quasi-experiment; regression discontinuity
JEL Codes: H3; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Generosity of retirement benefits (H55) | Decision of military officers to remain on active duty (H56) |
| Reduction in the generosity of retirement benefits (H55) | Decision of military officers to remain on active duty (H56) |
| Reduction in retirement benefits (H55) | Retention rates of military officers (H56) |
| Generosity of retirement benefits (H55) | Retention rates of military officers (H56) |
| Present value of military wages (H56) | Retention rates of military officers (H56) |
| Civilian wages (J31) | Retention rates of military officers (H56) |