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According to widely reported estimates, a "pay gap" of more than 13 percent exists between the pay of military personnel and that of workers in the civilian economy. This paper examines how the reported pay gap is calculated and what information it provides to policymakers concerned with setting military pay levels.

The paper is the third of three reports looking at various aspects of the military pay system that the Congressional Budget Office (CBO) has prepared at the request of the Chairman and Ranking Minority Member of the Subcommittee on Personnel of the Senate Committee on Armed Services. The first of the three papers, Military Pay and the Rewards for Performance (December 1995), examined proposals for restructuring the table of military basic pay. The second, Housing Prices, Housing Choices, and Military Housing Allowances (October 1998), discussed the rationale for a new system of calculating housing allowances that the Congress established in 1997 and problems that could be encountered in implementing it.

Richard L. Fernandez of CBO's National Security Division prepared this paper under the general supervision of Deborah Clay-Mendez and Christopher Jehn. The author gratefully acknowledges the valuable comments that Mark Musell of CBO provided on an earlier draft.

Joseph Foote, Sherry Snyder, and Christian Spoor edited the manuscript, and Liz Williams proofread it. Judith Cromwell prepared the paper for publication. Laurie Brown prepared the electronic versions for CBO's World Wide Web site (www.cbo.gov).
 

Dan L. Crippen
Director
June 1999
 
 

SUMMARY

I - INTRODUCTION

• The Purpose and Main Findings of This Paper
• The Structure of Military Pay

II - UNDERSTANDING THE REPORTED PAY GAP

• Calculating the Reported Pay Gap
• Shortcomings of the Reported Pay Gap
• The Pay Gap and Trends in Recruiting and Retention
• Measuring Trends in Relative Pay

III - IS THE PAY GAP A USEFUL CONCEPT?

• The Pay-Gap Concept and Effective Pay Policy
• Comparisons of Pay Levels as an Indicator of Fairness
• The Pay-Gap Concept as a Guide to Policy

IV - LESSONS FOR PAY POLICY

• The Pay-Gap Calculation and the Pay-Raise Process
• An Alternative Focus for Pay Policy
• Conclusions

APPENDIXES

A - The Structure of Military Pay
B - The Relationship Between Military and Civilian Pay in 1982
C - Pay Adjustments Outside the Annual Pay-Raise Process
 

TABLES
1.	Estimates of the Change in Relative Pay Since 1982
A-1.	Average Regular Military Compensation in 1998 and Its Distribution Among Components of Pay, by Pay Grade and Dependency Status
C-1.	Effective Military Pay Raise and Additional Raise Required to Offset Changes in the Tax Advantage, Fiscal Years 1986-1988
FIGURES
1.	Distribution of Regular Military Compensation Among Its Components
2.	Calculating the Reported Pay Gap
3.	Time Lines of Changes in Civilian and Military Pay That the Reported Pay Gap Compares
4.	What the Reported Pay Gap for 1997 Would Be If Different Starting Points Were Used
5.	Annual Changes in the Employment Cost Index and the Defense Employment Cost Index, Calendar Years 1977-1993
6.	High-Quality Recruits, Fiscal Years 1980-1997
7.	Active-Duty Enlisted Personnel with More Than Four Years of Service, Selected Fiscal Years 1982-1996
8.	Annual Earnings in 1997 of Typical Officer and Enlisted Personnel Compared with the 75th Percentile of Earnings for Male College Graduates and High School Graduates
C-1.	Increase in Regular Military Compensation for Enlisted Personnel with Dependents, Fiscal Years 1982-1996
BOXES
1.	The Employment Cost Index
2.	Limitations of the Defense Employment Cost Index

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