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Mr. Chairman and Members of the Subcommittee, I am pleased to have this opportunity to testify on the so-called military "pay gap," the amount by which military pay raises seem to have lagged behind raises in the civilian economy over the past 10 years or more. That issue is part of a larger Congressional Budget Office (CBO) study also requested by this Subcommittee. The full study, which CBO expects to complete later this year, will examine the structure of military pay and allowances as well as the overall level of pay.

According to widely reported estimates, a pay gap developed rapidly during the 1980s. The Army, Navy, and Air Force Times regularly report those estimates, and many people accept the existence of a gap as a simple fact. According to a February 20,1995, article in the Navy Times, the gap stood at 12.8 percent following the most recent military pay raise.

This testimony makes two basic points and provides cost estimates for some illustrative military pay raises above those planned by the Administration. First, the military pay gap must be thought of not as a single number but rather as a range. There are many ways to calculate the gap, and the most commonly reported number is toward the upper end of the range of possible estimates. Using the same basic measure of civilian earnings and assumptions that underlie the reported estimate of the pay gap, but applying them in a different manner, CBO finds a gap only about half as large as is commonly reported. An alternative measure of raises in the civilian economy, which was developed for the Department of Defense (DoD) as part of the Seventh Quadrennial Review of Military Compensation four years ago, indicates that military pay raises may actually have exceeded pay raises for comparable civilian workers.

Second, a pay gap, if one existed, would not necessarily indicate problems for the military in competing with civilian employers, nor would it mean that military personnel are underpaid or are not fairly compensated for their sacrifices. Pay is only one of many factors in individual decisions to join the military or continue in service, and it represents only one of many tools that the services use to influence those decisions. Notably, during the 1980s, when most of the reported pay gap developed, retention was strong and recruit quality was rising rapidly.

Some people may interpret a reported pay gap as meaning that the military is underpaid in absolute terms--that people are paid less than they could earn in comparable jobs in the private sector or that junior personnel, in particular, are paid too little to afford a decent standard of living. Unfortunately, there is no easy or generally accepted way to measure pay comparability for military personnel, and it is only by assumption, and not through any formal study, that certain years are accepted as times when military pay was "about right" in comparison with civilian pay. Judging the equity of military pay is even more problematic and largely a matter of policy rather than analysis. Estimates of a pay gap do little to help in that judgment. What was a "fair" level of pay when the main threat was a Soviet invasion of Europe or a nuclear attack may be too high or low in today's very different environment.

Closing the reported pay gap would be costly. Simply maintaining the current position of military pay, relative to the index of pay in the private sector that is used in the pay-adjustment process for federal civilians, would add $4.7 billion to defense budget authority over the 1996-2000 period. Adding an extra 2 percentage points to the raise each year, to roughly close the reported gap over six years, would cost an additional $17.3 billion over the 1996-2000 period.

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