Military Personnel Retention, Bonuses, and Civilian Labor Market Conditions
Early Career Research Award
The rigid pay structure for U.S. military personnel creates a challenge for retaining highly skilled individuals. Service members’ base pay depends only on rank and time in uniformed service, and with rigid promotion requirements, personnel who have attractive options in the civilian labor market high-demand skills are unlikely to receive a competitive pay offer in the military. One tool the services use to address this challenge is the elective Reenlistment Bonus (SRB), which offers eligible personnel classified in particular skill groups a substantial cash bonus upon reenlistment. By adjusting bonus levels for each skill group, the military can potentially retain sufficient personnel to meet its needs, much like the way that private employers would adjust salaries based on skill. Given that bonus amounts may be changed in response to civilian labor market conditions, this analysis will control for detailed information on the civilian unemployment rate and averages wages, matched as closely as possible to each service member’s location and career specialty. Simplifying assumptions about the reenlistment process will be relaxed by integrating the eligibility criteria into the econometric model. In particular, retention will be modeled as dependent on factors that may influence reenlistment eligibility in addition to factors that may influence reenlistment conditional on eligibility. The work will also explore other implications of bonus policies. Understanding the relative impact of bonuses on high-ability versus low ability personnel (as measured by standardized test scores) would provide insights into potential unintended consequences of bonuses. This research is applicable to military and civilian institutions. In addition to the proposed research, the applicant has conducted internal analysis for the Air Force that addresses similar questions and took some of the analytic steps proposed above. The proposed work would broaden the potential application of these methods to other military organizations.