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Optimal compensating wages for military personnel

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  • Scott E. Carrell

    (USAF Academy, CO.)

  • James E. West

    (USAF Academy, CO.)

Abstract

The current U.S. military pay structure offers inequitable and inefficient wages across locations. Military personnel are paid less competitive wages in high-cost and|or low-amenity locations compared to low-cost and|or high-amenity locations. This pay system results in unequal reenlistment rates across locations, which leads to production inefficiencies caused by short-term manning shortages in highturnover locations. Wages set according to local civilian compensating wage differentials would result in a more stabilized force (across locations) by equalizing the opportunity cost of staying in the military at each location. Additionally, more personnel would volunteer to serve in the high-cost and|or low-amenity locations because wages would be more commensurate with local costs and amenities. This would result in fewer non-volunteer assignments to undesirable locations and a minimized opportunity cost for personnel serving at each location. Reenlistment simulations on first-term Air Force personnel show that the proposed wage structure would better equalize reenlistment rates across locations. This proposal could be implemented at no cost to the government by cutting wages in low-cost and|or high-amenity locations. A gradual implementation in which such wages are frozen or increased slowly may be more politically palatable. © 2005 by the Association for Public Policy Analysis and Management

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File URL: http://hdl.handle.net/10.1002/pam.20139
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

Volume (Year): 24 (2005)
Issue (Month): 4 ()
Pages: 803-822

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Handle: RePEc:wly:jpamgt:v:24:y:2005:i:4:p:803-822

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Web page: http://www3.interscience.wiley.com/journal/34787/home

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  1. Kenny, Lawrence W. & Denslow, David Jr., 1980. "Compensating differentials in teachers' salaries," Journal of Urban Economics, Elsevier, vol. 7(2), pages 198-207, March.
  2. Fisher, Anthony C, 1969. "The Cost of the Draft and the Cost of Ending the Draft," American Economic Review, American Economic Association, vol. 59(3), pages 239-54, June.
  3. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  4. Getz, Malcom & Huang, Yuh-ching, 1978. "Consumer Revealed Preference for Environmental Goods," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 449-58, August.
  5. Asch, Beth J & Warner, John T, 2001. "A Theory of Compensation and Personnel Policy in Hierarchical Organizations with Application to the United States Military," Journal of Labor Economics, University of Chicago Press, vol. 19(3), pages 523-62, July.
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Cited by:
  1. Carrell, Scott E., 2007. "The national internal labor market encounters the local labor market: Effects on employee retention," Labour Economics, Elsevier, vol. 14(5), pages 774-787, October.
  2. Scott Carrell & Jonathan Zinman, 2008. "In harm’s way? Payday loan access and military personnel performance," Working Papers 08-18, Federal Reserve Bank of Philadelphia.

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