Military Retention Incentives: Evidence from the Air Force Selective Reenlistment Bonus

Authors

Justin Joffrion, U.S. Air Force Academy
Nathan Wozny, U.S. Air Force Academy

Publication Date

4-28-2015

Series

Upjohn Institute working paper ; 15-226

DOI

10.17848/wp15-226

Abstract

The limited lateral entry and rigid pay structure for U.S. military personnel present challenges in retaining skilled individuals who have attractive options in the civilian labor market. One tool the services use to address this challenge is the Selective Reenlistment Bonus (SRB), which offers eligible personnel with particular skills a substantial cash bonus upon reenlistment. However, the sequential nature of the bonus offer and reenlistment process limits the ability to adjust manpower quickly, raising interest in research that estimates the effect of the SRB on retention. While this literature has acknowledged challenges including potential endogeneity of bonus levels, attrition, and reenlistment eligibility, many studies do not address these concerns adequately. This paper uses a comprehensive panel data set on Air Force enlisted personnel to estimate the effect of the SRB on retention rates. We exploit variation in bonus levels within skill groups, control for civilian labor market conditions, and model reenlistment eligibility to avoid common assumptions that lead to biased impact estimates. We find substantial heterogeneity in the effect of the bonus, with the largest effects on first-term service members and those whose skills have not historically received a substantial bonus. We also find evidence that the bonus affects the timing of reenlistment decisions in addition to their frequency.

Issue Date

April 2015

Sponsorship

W.E. Upjohn Institute for Employment Research Early Career Research Award 14-147-10

Subject Areas

LABOR MARKET ISSUES; Wages, health insurance and other benefits