The Earnings Premium for U.S. Veterans

For many service members leaving the U.S. military, the transition to civilian life can be challenging. How do veterans fare once they reestablish themselves in the civilian labor force?

This blog posts examines one measure of veterans’ economic situation: their civilian incomes compared with those of nonveterans. In other words, do veterans earn relatively more or less than workers who have not served in the military?

Data on Veterans

Information on veterans has been collected by the U.S. Census Bureau since 1840. Veterans are civilians who served on active duty in one of the six branches of the U.S. armed forces—Air Force, Army, Coast Guard, Marine Corps, Navy and Space Force—regardless of the length and place (U.S. or abroad) of their service.

As shown in the table below, many veterans are of working age: Approximately 40% of male veterans and 70% of female veterans are younger than 60. In general, the table also reveals that female veterans are younger than male veterans.

Analyzing the Incomes of Veterans and Nonveterans

For those of working age, how do veterans fare economically compared with those who didn’t serve? To answer this question, I now restrict the analysis to veterans between the ages of 21 and 59 who are currently employed, and I examine their economic performance via the income they earn through working.

The next table shows the wage and salary income of employed veterans versus that of employed nonveterans in 2019. Interestingly, both male and female veterans earned higher income than nonveterans.

The difference for men is about 9% ($68,384 versus $62,918) while for women it is 13% ($51,017 versus $45,082); women seem to benefit more from having served than men. A consequence of this can be seen in the last column of the second table. The gender gap in earnings is less pronounced among veterans than among nonveterans. Among the former, a woman earns 75% of a man’s earnings. Among the latter, a woman earns 72% of a man’s income.

The second table masks some heterogeneity which may be important for a better understanding of the data, however. For example, male and female veterans do not have the same age distribution, as shown in the first table. Thus, they may not have the same level of experience in their job. Since they are younger than male veterans, female veterans are likely to have less job experience. It follows that their lower earnings relative to men’s are in part a reflection of this lesser experience. More generally, the second table may mask heterogeneity across gender and veteran status in many dimensions besides age: education, race, marital status, etc.

The Earnings Premiums When Other Factors Are Taken into Account

Reviewing all the possible combinations in a table is not practical. A statistical analysis of the data, however, can help. Such analysis reveals that among female veterans, the premium is 5.9% while among male veterans it is 4.1%. That is, among female workers of the same age, race, education and marital status, a veteran is likely to earn an income 5.9% higher than that of a nonveteran. Among male workers, a veteran is likely to earn an income 4.1% higher. These figures are consistent with the findings from the table (i.e., 13% for women versus 9% for men), but the adjusted premiums are smaller since the more precise statistical analysis ascribes some of the earlier male-female difference to factors other than just veteran status. It remains the case, however, that the veteran premium is higher for women than for men.

To place the veteran premium in perspective, the same analysis reveals that the college premium is 62%. That is, among workers of the same age, gender, race, veteran and marital status, a college-educated worker is likely to earn an income 62% higher than a worker without a college degree.

Although an order of magnitude lower than the college premium, there is a significant earnings premium to being a veteran. It must be noted, however, that the analysis carried out here is silent on the cause for the veteran premium. In fact, the analysis does not indicate whether veterans earn more because they served in the militaryFor example, service members can gain valuable training and skills in their military occupational specialty, such as an electrician or medic. or because people who tend to earn more in the first place are also more likely to be veterans. These are questions certainly deserving of further analysis.

Note

1. For example, service members can gain valuable training and skills in their military occupational specialty, such as an electrician or medic.