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Long-Term Effects of Leaving Military Service in a Weak Economy

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Abstract

Previous research finds negative effects in the short and medium term for those who initially entered the labor force during weak labor markets. Discerning the effects of initial market conditions is difficult as young workers may attempt to time their entry by, for example, spending additional time in school during weak markets. In this paper, we take advantage of a novel form of exogenous variation that affected a large group of older workers to study longer-term effects of entering labor markets during bad economic times. Using the Health and Retirement Study, we focus on veterans from the draft era and examine the effects of leaving military service during periods of high unemployment on earnings, wealth, and retirement. These men had little choice about the timing of entry into the labor force; they generally were drafted or volunteered based on world events, and they left the military at the end of fixed contracts after short terms of service. Our results indicate that draft-era veterans who entered the labor force during a weaker economy had lower levels of earnings, and the effects lasted for more than a decade. We also find that while veterans who enter weak labor markets eventually catch up with other veterans in terms of earnings, the accumulated negative effects on wealth and financial preparedness for retirement are large; we find some evidence that veterans compensate by extending their working lives.

Key Findings

  • This study compares short- and long-run outcomes for veterans from the draft era who entered the civilian labor market during periods of relatively low unemployment with outcomes of similar veterans who entered the civilian market during periods of higher unemployment.
  • Higher levels of unemployment are linked to a variety of negative outcomes, and the effects take years to dissipate.
  • Veterans who entered the civilian market in periods of high unemployment have lower earnings for more than a decade, have lower levels of prospective Social Security wealth, and appear to delay retirement, perhaps to compensate for the negative effects experienced early in their careers.
  • Veterans who began work during periods of high unemployment have higher levels of family instability in later decades. This could represent another measure of household well-being.
  • Results suggest that young workers who entered the labor market during the Great Recession are likely to experience negative effects throughout the first phases of their career. Indeed, some of the effects could influence today’s young workers through retirement.

Citation

Gutierrez, Italo A., and Jennie W. Wenger. 2017. “Long-Term Effects of Leaving Military Service in a Weak Economy.” Ann Arbor MI: University of Michigan Retirement Research Center (MRRC) Working Paper, WP 2017-369. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp369.pdf

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Project

Paper ID

WP 2017-369

Publication Type

Working Paper

Publication Year

2017