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Retirement Pay and Officer Retention

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18502.

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Date of creation: Nov 2012
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Handle: RePEc:nbr:nberwo:18502

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