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

48 Pages Posted: 22 Jan 2018

Date Written: September 2017

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.

Keywords: veterans, retirement wealth, cohort effects

Suggested Citation

Gutierrez, Italo A. and Wenger, Jennie, Long-Term Effects of Leaving Military Service in a Weak Economy (September 2017). Michigan Retirement Research Center Research Paper No. 2017-369, Available at SSRN: https://ssrn.com/abstract=3105363 or http://dx.doi.org/10.2139/ssrn.3105363

Italo A. Gutierrez (Contact Author)

Independent Consultant ( email )

Jennie Wenger

RAND ( email )

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