Retirement Pay and Officer Retention

28 Pages Posted: 3 Nov 2012 Last revised: 23 Jul 2023

See all articles by Jeffrey Smith

Jeffrey Smith

Virginia Military Institute

James E. West

Baylor University - Department of Economics

Date Written: November 2012

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.

Suggested Citation

Smith, Jeffrey and West, James E., Retirement Pay and Officer Retention (November 2012). NBER Working Paper No. w18502, Available at SSRN: https://ssrn.com/abstract=2170627

Jeffrey Smith (Contact Author)

Virginia Military Institute ( email )

Department of Economics and Business
Scott Shipp Hall
Lexington, VA 24450
United States

James E. West

Baylor University - Department of Economics ( email )

P.O. Box 98003
Waco, TX 76798-8003
United States
254-710-6126 (Phone)

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