1. \label{section-97}
  2. Effect on earnings

    \label{effect-on-earnings}
We estimate the short-term and long-term effects of reentering the civilian labor market in periods of high unemployment using information from the respondent cross-year SSA summary earnings file (in combination with the RAND HRS datafiles). We estimate the following linear regression model:
\begin{equation} {}_{\text{it}}=\alpha+\beta_{1}UR_{i}+\sum_{k=1}^{K}{\beta_{2k}\text{Time}_{k,it}}+\sum_{k=1}^{K}{\beta_{3k}\left(\text{Time}_{k,it}\times UR_{i}\right)}+\beta_{4}X_{i}+{\gamma_{t}+\epsilon}_{\text{it}}\nonumber \\ \end{equation}
Where \(y_{\text{it}}\) is total annual income (in 2016 dollars); \(UR_{i}\) is defined as before; \(\text{Time}_{k,it}\ \)are a set of indicator variables for the time (in years) passed since leaving active duty. We have grouped the time passed in period of five years. The data only includes the years since the veteran left the military. If an individual does not report earnings in a year, the earnings are coded as zero. The additional controls in \(X_{i}\) include age, gender, race, Hispanic ethnicity, age at enlistment, whether enlisted during a conflict, unemployment rate at enlistment, and whether the respondent has a disability related to active service. All standard errors are clustered at the individual level.
The estimates are shown in Table 3. We find that in the first 10 years after reentering the civilian life, a 1 percentage-point increase in the unemployment rate at the time of exiting active duty is associated with a reduction in annual earnings of about $750. We also find that the effect decreases thereafter, but remains significantly lower up to 15-20 years after reentering the civilian labor market.
We also estimated a similar model as equation (3) but with accumulated earnings since reentering the civilian life on the left-hand side. In this case, we use only observations collected in 5-year increments after leaving the military. The estimated results are shown in Table 4. We find that a 1 percentage point increase in the unemployment rate at the time of leaving the military reduces accumulated earnings 30 years later by about $15,000 (in 2016 dollars). We also find negative effects on accumulated earnings 35 and 40 years after exiting the military but the estimates during this period are less precise and not statistically significant.
Table : Effect of unemployment rate at time of exit from active service on yearly earnings (2016 $)