Date of Award

Spring 5-16-2011

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Economics

First Advisor

Kenneth I. Wolpin

Second Advisor

Petra E. Todd

Third Advisor

Flavio Cunha

Abstract

With 2.4 million employees, the military is America's largest employer. Individuals make the military labor force participation decision within the context of other labor market opportunities, which may vary by race and over the business cycle. This paper develops and estimates a dynamic discrete choice model of lifetime career decision making that incorporates military options. In the model, forward-looking individuals receive wage offers from the civilian and military sectors and decide whether to work in the civilian sector, attend school, stay home, serve active duty military, or serve reserve duty military. The model describes the military's compensation structure and recruitment policies in detail and introduces business cycle effects that affect civilian labor market opportunities. The model is estimated by simulated maximum likelihood using data on males from the NLSY79. Parameter estimates reveal that the civilian sector places a high premium on civilian experience relative to military experience. The model fits well military participation patterns and dynamics, including by race and over the business cycle. The model is used to perform experiments that alter the military compensation and promotion structure. Results indicate that military participation is highly elastic with respect to changes in the wage rate. Other experiments reveal that blacks' participation in the military drops dramatically as the racial wage gap in the civilian sector decreases. Experiments that alter the length and severity of business cycles result in military participation rate effects that range from 3% to 6%.