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Economics of the Military DraftAuthor(s): W. Lee Hansen and Burton A. WeisbrodSource: The Quarterly Journal of Economics, Vol. 81, No. 3 (Aug., 1967), pp. 395-421Published by: Oxford University PressStable URL: http://www.jstor.org/stable/1884808.

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ECONOMICS

OF

THE

MILITARY

DRAFT

*

W.

LEE HANSEN

AND

BURTON

A.

WEISBROD

I.

The

conceptual

framework,

396.-II.

The

model,

402.--III.

Empiri-

cal

application,

406.--IV. Some

extensions

of

the

analysis,

411.-V.

Conclusion,

421.

This

paper

investigates

two

important

consequences

of

the

present military

draft

system.

They

are distributive

effects-the

impact

on

the

distribution of

real

output,

and allocative

costs

-

the

impact

on the

size

of

that

output.

The

distributive

effects

result

from the

relatively

low

rate of

pay

to draft-affected men -what

we refer to as the

implicit

income

tax.

The

allocative

costs result

from

the

effects of

the

military

personnel

system

on the

efficiency

with which

a

given

level

of resources

is allocated

among

alternative

uses.

In

analyzing

the

consequences

of the

draft

system,

a standard

for

comparison

is

necessary.

For this

standard

we have

selected

a

free-market, voluntary system,

but

in

so

doing

we

do

not

intend to

suggest

either

that

this

is the

only

alternative

worthy

of considera-

tion,

or

that,

all

things

considered,

it

is

preferable

to

the

existing

draft

system.

Whether

a

voluntary

system

is

preferable

under

present

or

any

other

conditions

is not the

issue;

rather,

we

wish to

point

out certain

consequences

of

existing

arrangements.'

These

consequences

of

the

draft

system

stem

directly

from

several

key

features of that

system,

including:

(1) The compulsion to serve; the individual,

if

called,

has

no

choice

as to

whether

or

not

he

serves.

(2)

The

nature

of

the

selection

procedure;

as

long

as the size

of the

draft-age

pool

substantially

exceeds

military

requirements,

rather

arbitrary

decisions

must

be

made

concerning

draft

eligibility,

i.e.,

which

segments

of

the

population

will

be

exempted

or

rejected,

and

which selected.

*

We wish

to

acknowledge

the

comments

of A.

Holtmann,

S.

Altman,

and

others,

the

research assistance

of

E.

Fenlon,

and

the financial

assistance

pro-

vided

by

the Graduate School of The

University

of Wisconsin. Much of the

work

on this

paper

was done

in

1965

in

connection

with then-current

in-

vestigations

of the

draft.

Subsequent

to

the

writing

of

this

paper,

several other

papers

on this

subject

have

been

circulated.

See

for

example,

Walter

Y.

Oi,

The Economic

Cost of

the

Draft,

and

Stuart

H. Altman

and

Alan

E.

Fechter,

The

Supply

of

Military

Personnel

in

the

Absence

of a

Draft,

papers pre-

sented at

the

American

Economic

Association

meetings,

December

1966.

1. In

considering

these

alternatives

in a

comparative-statics

framework

we

ignore

any

and all

transition

costs

involved

in

shifting

from one

system

to

another.


3/28

QUARTERLY

JOURNAL

OF ECONOMICS

(3) Following

from

(2),

the

uncertainty

for

men

of

draftable

age

as

to

whether,

when,

and

for

how

long

they

might

be

required

to

serve.

(4)

The

generally

below-market

wage

paid;

draft

systems

are

customarily

(though

not

necessarily)

characterized

by

rates

of

pay

that

are below

those

available

to

comparable

men in

the civilian

sector.

This

study

has

limited

scope.

It is limited

to

the

analysis and,

where

feasible,

the

estimation of

the

effects of

the

military

draft

system

on the

size

and distribution of

real

output,

holding

constant

the level of aggregate resource use. It does not consider the effects

of

the draft

system

on

such extra-economic variables

as

the

quality

of

good

citizenship,

or the

bringing

together

of men from

diverse

regions

and

backgrounds,

or the ethical

issues

relevant

to

how the

risk

of

death in

combat

-which

has

increased

with the

expansion

of

the

Vietnam

war

-should be

shared.

Neither

does

it

consider

the

desirability

of

altering

the size

of

the

armed

forces;

that

is

taken

as

given.

Rather,

we

concentrate

on

the

economic

effects

of the

system by which a given level and quality of military manpower is

secured.2

However,

toward the close of

the

paper

we do

show

how

the

draft

system

tends to

increase the

number of

men

in

uniform

(at

any point

in

time)

above that

necessary

to

provide

a

given

military

capability.

The

plan

of

the

paper

is as

follows:

in

Section

I

the

income-

distributive effects

and

the

allocative-efficiency

costs

of

the

present

draft

system

are examined

at

the

conceptual

level.

In

Section

II

the model underlying the empirical analysis is presented, and in

Section

III an

empirical

version

of

the

model

is

developed

and

some

quantitative

estimates

are

derived.

Finally,

Section

IV

explores

some

ramifications

of the

analysis.

I. THE CONCEPTUAL

RAMEWORK

A.

Distributive

Effects

The current draft system imposes an implicit income tax on

draftees,

collected in

the

form

of

reduced

rates

of

pay,

i.e.,

the

difference

between their

civilian

opportunity

cost and their

military

remuneration--in

cash and

in

kind.

This

implicit

tax

currently

redounds

to

the

advantage

of

taxpayers

in

general, who,

as

a

con-

2.

For

an

extensive

bibliographic

urvey

of

the literatureon

military

manpower

policy,

see

Military Manpower

Policy:

A

Bibliographic

Survey,

Adjutant

General

Department

f the

Army,Department

of

Defense,

June

1,

1965.

396


4/28

ECONOMICS

OF THE MILITARY DRAFT

sequence,

pay

smaller

explicit

taxes

than

they

would

if

draftees

were

not

thus

taxed.

This

implicit

tax

on

servicemen-which

involves

a

redistribution

of

income

between servicemen

and civilians

-

is

what we

mean

by

distributive effects.

To observe

that the choice

between

a draft

and

a

voluntary

system

involves

a

different

distribution

of income

and

output

in

the

economy

does not

imply

the

superiority

of

either

system.

For

taxpayers

in

general,

the draft

provides

an

inexpensive

method

of

maintaining

a

desired

level of

defense

capability.

However, during

the

early

1960's

society

became

increasingly

concerned

with

the

growing inequity

of the

implicit

tax on

draftees,

as an ever-smaller

fraction

of

the

potential

manpower pool

became

subject

to

the

tax.

This

occurred as

the number of

men of

draftable

age

grew,

while

concurrently

military

manpower

requirements

were

declin-

ing.

Even with the

heightened

military

manpower

requirements

produced

by

the Vietnam

war,

it

remains true

that a substantial

fraction of

young

men

are

not

serving

and will

not serve because

they

are

rejected

or

exempted,

or

because

deferments

carry

them

beyond the established upper age limit. Thus, the Universal Military

Training

Act is even now not

universal,

and the

tax

which

it

imposes

remains selective

and

discriminatory.3

This

brief

discussion

has

recognized

the effects

of

the

draft

system

on

the

distribution

of

a

given

level of

real

income.

But,

the

draft

system, by

constraining

the allocation

of

resources,

also

effects

-

and

adversely

-

the size of

real income.

The next

section

considers

these allocative costs.

B.

Allocative-Efficiency

Costs

A

draft

system replaces

the

price

mechanism

of the

market

place

with a direct-control

mechanism

for

allocating

labor

resources

between the

military

and civilian

sectors

of

the

economy.

In the

3. There are a number of

dimensions to

the

redistributional

effects

of the

draft.

To the

extent that

military personnel,

who

are

presently

arrayed

toward

the lower end of the income

distribution,

would

receive

income

increases

under

a

voluntary

system,

there would

tend

to

be

greater equality

in

the

overall

income-size distribution if a voluntary system were introduced. Distribu-

tional

changes

would occur

not

only by

income

size,

but

also

by age,

geo-

graphic area,

and

industry

or

occupational

affiliation.

For

example,

since the

military

offers

a

uniform

wage throughout

the

country,

the

existence

of

in-

terregional wage

difference in the

nonmilitary

sector tends

to

make

military

service

relatively

more attractive

in

some

regions

than

in others.

Similarily,

the

drawing

power

of

the

military

for men

in

some

occupations

or

industry

groups

is

stronger

than

in

others.

In

addition,

the

attractiveness of the

military

services

varies

with

respect

to one's

age.

The net

impact

of these

illustrative distributional effects

of

a

voluntary

system

would

be

to

accentuate

labor

market and

related

pressures

in

some areas or sectors

of

the

economy

and to relieve them

in

others.

397


5/28

QUARTERLY

JOURNAL OF ECONOMICS

process,

the

draft

system

tends to

produce

a

variety

of

economic

costs

by:

(1) Restricting

labor

mobility through its compulsory aspects,

thereby

leading

to

substitution effects within

the

military.

These

latter tend

to favor

production

techniques using

relatively

large

amounts

of

labor

in

general

and skilled labor

in

particular,

given

the

cheapness

of

manpower

to

the

services and the

absence

of

price

differentials

between

manpower

at various

skill

levels.

(2)

Creating

incentive

effects

and increased

uncertainty

for

employers

and

employees,

through

its

eligibility

criteria and its

induction scheduling arrangements.

(3)

Increasing

turnover

rates,

thereby

adding

to the

organiza-

tional,

training,

and

administrative costs

of

meeting

military

man-

power

needs.

These three

types

of

costs

are

not

independent

of each

other,

and

the

distinction

among

them

is not

always clear,

but this

division

provides

a useful

basis

for

analyzing

the

principal

allocative

costs

of a

draft

system.

While

the

impact

of each

type

of cost

appears

in

both the civilian and military sectors of the economy, the first of

these

costs--labor

mobility

costs -has its

major

effect on the

allocation

of

resources between the

civilian

and

military

sectors,

while

costs of the

second and

third

types

are

confined

largely

to

resource

allocations within

the

civilian

and the

military

sectors,

respectively.

1.

Constraints

on labor

mobility.

The existence of

a

draft

system together

with

its

corollary

-

a

wage

level

inadequate

to

attract the number and quality of military personnel required

-

inevitably

determines

which

people

are

in

the

military

service at

any

point

in

time

and which are

not.

If

manpower

requirements

are

met

through

a

voluntary

enlistment

system,

with

wage

and other

incentives

adequate

to

generate

the

required

number of

enlistments,

the

specific

individuals

volunteering

for

military

service

would

not

be the

same

as those called into

the armed forces under

a

draft

system.

The

draft

system,

through

its

coercive

power,

restricts

opportunities for labor resources to move into uses where their net

productivity

is

greatest, given

individual

utility

functions,4

and

thereby

reduces

real national

product

below

the

level

which

could

be

attained with

any

given

level

of

aggregate

resource

use.

This

reallocation occurs

in

the

following

way.

Under a

draft

system

of

the

present

type,

a considerable

degree

of

randomness

4.

Utility

functions

will,

of

course,

reflect

any preferences

for

or

aversion

to

military

service,

with

all that these

entail.

398


6/28

ECONOMICS OF

THE

MILITARY

DRAFT

exists

with

respect

to

the

civilian

productivity

of

men

drafted for

service.

Optimally,

from

the

standpoint

of

efficiency

in the

use of

manpower

resources,

the

services

should be staffed

by

those

men

who,

for the

given

level

and

quality

of

manpower required,

have

the

lowest civilian

opportunity

cost

(productivity.)

5

The

draft

system

does

this

very

imperfectly,

at

best,

since

among

eligible

men,

the

great

variations

in

their

civilian

productivity

are

given

scant

consideration in

making

selections

for

the

draft.6

The

opportunity

costs

imposed

on

the

civilian

economy by

this

largely

random

process

of selection

tend to be

greater

than

the

costs

necessary

to

secure

the needed

quantity

and

quality

of men.

To

the

extent that men who are

drafted

have

greater

civilian

produc-

tivity

than some

who

are

not drafted

but

who would be

equally

acceptable

to the

military

services,

the

draft

system

unnecessarily

depresses

real

output

in

the civilian sector

of

the

economy.

By

contrast,

under a

voluntary

system

in which

military

wage

rates

were

sufficiently

high

to

attract

the

personnel required,

men

would

offer

their

labor

services

to

the armed forces

only

to

the extent

that

their value to the armed forces exceeded their value (productivity)

outside,

as

conditioned

by

individual

preferences.

Thus,

the

composition

of

military

personnel

with

respect

to

their

civilian

productivity

would differ

from that

produced by

a

draft;

the con-

sequence

would

be

an increase in

aggregate

real

output

in the

rest

of

the

economy,

with no

decrease

in

the

capability

of

the

military

sector.7

2.

Incentive

and

uncertainty effects.

The draft

system

pro-

duces a variety of incentive and uncertainty effects for both private

5.

Other

goals

than economic

efficiency

should

influence

military

man-

power

policy,

of

course,

but

noneconomic considerations

are

beyond

the

scope

of this

analysis.

6. One

exception,

of

course,

is

the deferment of men

in

occupations

deem-

ed

essential

for

national

defense.

Another

involves

deferments of

graduate

and

professional

school

students-deferments

which

may

in

effect become

exemptions

as

students

pass

the

draftable

age.

7.

Foregone

productivity

in

the

civilian

sector, occurring

because of the

draft

system, may

also take the

form of

foregone

future

output.

The latter

involves

foregone,

or

at least

postponed,

training

and

educational

services,

insofar as the availability of such services to members of the armed forces

falls short of

their

availability

in

the

civilian

economy.

(Training

and

educational activities are

less

likely

to

be

foregone

if similar

post-service

op-

portunities

are

available

through,

for

example,

a

GI

Bill. Of

course,

the

pro-

vision

of

such

opportunities

amounts to a

constrained

increase

in

compen-

sation.)

If

education

and

training

of the

types

having

nonmilitary

value

are

less

readily

available

in

the

military sector,

the draft

system

involves

fore-

gone

current

capital

formation via education

and

training

and

hence fore-

gone

future

productivity.

The

extent of

such loss is

mitigated

insofar as the

education

and

training programs provided

by

the

military

services

produce

skills

having

transferable value to the rest

of the

economy.

However,

this

aspect

is

not

dealt with

here.

399


7/28

QUARTERLY

JOURNAL OF

ECONOMICS

employers

and

potential

draftees.

Incentive effects

are

necessary

consequences

of the existence of the

draft.

Uncertainty

effects are

results

of

the

particular eligibility

and selection

procedures

cur-

rently

employed.

The

very

existence of a draft

gives

rise

to

incentive

effects

regardless

of the

degree

of

uncertainty

that it

may

or

may

not

produce.

If,

for

example,

all men

were to be

drafted

for, say,

two

years

at

age

eighteen,

both

employers

and

potential

draftees

might

be

expected

to

behave

differently

than

they

would

otherwise.

Employers might

not

contemplate hiring young

people

until

after

their

military service,

and

young people

would

have

to

defer

their

post-high

school education and

training.

Or

if

some

men

were

to

be

automatically exempted

from

the

draft,

their

hiring

and

educa-

tional

possibilities

would

be

enhanced

relative

to

draft-eligible

men.

The draft

also

gives

rise to increased

uncertainty

so

long

as

the

draft-eligible

population

exceeds

military

personnel

require-

ments.

This

uncertainty

operates

at both the

group

and

individual

levels.

Uncertainty

exists at

the

group

level insofar

as

the

total

number of persons who will be drafted is not known, or as the future

dimensions of the

draft-eligible

pool

are

not

specified

(i.e.,

draft

exemption categories

may

be

changed).

But

even

if

it

were

known

with

certainty

what the total number of

draftees will be

and

what

the

duration of

military

service

for

each

draftee will

be,

there

may

remain

considerable

uncertainty

with

respect

to

precisely

which in-

dividuals

will

be

selected for

the

draft.8

Thus,

for

the

individual

worker,

there is

uncertainty

regarding

whether

and when he

might

be drafted, and for the individual employer, there is uncertainty

regarding

the wisdom of

hiring

any

draft-eligible

man.

Even

if

no

men

are to be drafted

during

some

period,

the

very

existence

of

a

draft law

automatically

gives

rise to

these

economic

costs.

Even

if,

ex

post,

the

number

of

draftees

during

some

period

were

actually zero,

it

may

not have been at

all

clear

in

advance that

this

would

be the

case.

And

since

employers

as well

as

employees

must

plan

for the

future,

their

decisions will be

affected

by

anticipa-

tions about the workings of the draft system, quite apart from what

does,

in

fact,

happen.

As

pointed

out

earlier,

not

only

are

employers'

decisions

likely

to

be

affected

by

the

draft,

but the same

is true of

decisions

by

draft-eligible

young

men.

In

general,

the draft

system

establishes

incentives

for

avoiding

draft

eligibility,

and

this

alters

individual

8.

For

some

categories

of

people exempted

from

the draft

there

will

be

no

uncertainty

regarding

their

draft status so

long

as

the rules are not

changed.

400


8/28

ECONOMICS

OF

THE MILITARY

DRAFT

decisions

regarding employment,

occupational

choice,

and invest-

ment

in

training.

For

example, young

people,

recognizing

their

eligibility,

might

be

encouraged

to avoid

the

draft

by

placing

them-

selves in a deferred or excluded

group,

either

by

enrolling

in

college

9

or

by

marrying

and

having

children,

which

they

might

not other-

wise have

done

at

the

time.1

Or,

recognizing

that

induction is

imminent,

they

might

be

disposed

to take

temporary

jobs

that

have

no

real

career future.

Or,

they

might

not bother to seek

any

em-

ployment

at

all.

The

draft-created cost

of increased

uncertainty

in

the

civilian

sector of the

economy

is the

inverse

of

the

benefits,

in

terms

of

both

flexibility

and

certainty,

which

a

draft

system

provides

for the

military

sector.

With

a draft the

military

is

readily

able

to

secure

whatever

men are

needed,

whenever

they

are needed. But

under

a

voluntary

system

the

military

services

would

need

to

possess

considerable

flexibility

in

establishing

pay

schedules

in

order to

adjust

to

changing

supply

and

demand

conditions

in

the

interrelated

military

and civilian

segments

of

the

economy.

In

the

absence

of

such flexibility a voluntary system might well impose intolerable

burdens

on

the

national defense

effort,

particularly

in times

of

crisis,

when

sharp

increases

in

the

number

of

personnel

are

required.

Thus,

whereas a

voluntary

system

would

reduce

uncertainty

in

the

civilian

sector,

this

might

well come

at the

expense

of

greater

un-

certainty

and

diminished

flexibility

in

the

military

sector.

It could

be

argued,

of

course,

that

in

periods

of crisis

a

draft

system

could

be

reinstituted.

However,

to the extent

that

the

draft

were to be reinstituted frequently, uncertainty in the nonmilitary

sector

would

be increased.

Consequently,

standby

authority

to

reinstitute

the

draft would

have

to

be used

judiciously-and

only

in

clear

emergency

cases

-

lest the civilian sector

of

the

economy

be

adversely

effected.

Vacillation

between a

voluntary

and a draft

system

might

well

have more

serious economic effects than

the

con-

sistent

use

of

a draft

system.

3.

Organizational

and administrative

costs.

The draft

produces

several types of resource-allocative changes within the military sec-

tor.

First,

as

noted

above,

one

potentially

important

allocative

effect

of a

draft

system

results

from the

availability

of

military

man-

power

at

wage

rates that

fail

to reflect

opportunity

costs.

Among

the

9. Such

incentives

to

increase

purchases

of

education tend

to

offset

forces such

as

capital-market

mperfections

and the lack of income-tax

depreciability

f educational

expenditures

f

a human-investment

ype.

1.

Of

course,

n

designating

ertain

groups

as eitherdeferred

r

exempted,

the Selective Service

System

presumably

does

not intend to stimulate the

marriage

ate

or

encourage

poor

students o

pursue

higher

education.

401


9/28

QUARTERLY

JOURNAL

OF ECONOMICS

decisions which the

military

services must

make are

choices

between

the

degree

of

manpower

utilization

and the

degree

of

hardware

(capital)

utilization.

Since

the latter is

generally

bought

in

private,

uncontrolled

markets,

while the former is obtained at below market

prices

through

the

draft,

an

incentive exists

for the

services to sub-

stitute labor

for

capital equipment

to

a

superoptimal extent,2

or

at

least

to

substitute

highly

skilled,

highly

trained

labor--having

large

amounts

of

human

capital

-

for less skilled labor.

Second,

and

again

in

large

part

as

a

result

of the low

wage

level

existing

under the familiar

type

of

draft

arrangement,

the

system

tends

to

cause an

excessive

rate

of

manpower

turnover.

This

re-

sults in an

unnecessarily

large

quantity

of resources

devoted to

training

new

inductees.

That

is,

an

unnecessarily

large

fraction

of

servicemen are not

combat-ready, being

involved

in

training

ac-

tivities

either

as

trainees

or

as instructors or administrators.

As a

consequence,

to have a

given

number

of

ready

men

at

any

point

in

time,

the total

number

of

men

in

uniform must

be

larger

than

if

turnover rates

were

not

pushed up

by

the

submarket

wage

level

associated with the draft.3

At the same

time,

even

under a

voluntary system

some

ad-

ministrative

costs

associated

with

the Selective

Service

System

would

continue,

since the draft

machinery

would

probably

have to

be

retained

for

possible

emergency

use.

Moreover,

a

voluntary

sys-

tem

would entail certain

additional

costs

not

incurred

with the

draft. There

might

be need

for intensified

study

of the

price-

elasticity

of the

military

labor

supply

function,

and

recruiting

(ad-

vertising) efforts might have to be stepped up, depending upon the

attractiveness

of

the

financial

inducements.

In

summary,

any

ad-

ministrative-cost

savings

that resulted from the

inactivation

of the

Selective

Service

System

might

be

more than offset

by

the

costs of

more intensive

recruiting

and of additional

labor

market

analyses.

II.

THE MODEL

Our model for estimating the magnitude of the distributive

effects and allocative costs

(except

for

the incentive and

uncertainty

2.

As a

result,

the civilian

economy

tends to have too low a

labor/

capital

ratio,

for

a

given

level of

aggregate employment

in

the total

economy

(including

the

military).

Offsetting

this

tendency

perhaps,

is the

desire

of

military

officials to court

public

favor

by

holding

down

the

size of the draft

call.

3.

A

relatively high

rate of

turnover

is

not inherent

in

the

draft

system,

since,

obviously,

men could be

drafted

for

any

desired

period. However,

our

society

has

chosen

to make

the

period

of

compulsory

duty

rather

brief,

in

part,

no

doubt,

to offset

the

loss of

job

freedom and income

imposed

on draftees.

402


10/28

ECONOMICS

OF

THE

MILITARY

DRAFT

costs with

which

we are unable

to

deal)

is

most

easily

understood

by

reference

to

Figure

I.

At

this

point

the

model is

set forth

at

the

conceptual level,

while

in Part

III

its

empirical counterparts

are

presented.

We

turn

first to

the use

of the

model

for

estimating

the

draft

system's

labor

mobility

costs

which

are a

major

portion

of

total

allocative

costs.

As

noted

in

Section

I,

the

efficient

allocation

of

labor

between

the

military

services

and

the

civilian

sector

requires

that civilian

opportunity

costs

be

minimized, given

the number

and

quality

of

men taken

into

the

services.

The cumulative

distribution

of values of such civilian opportunities (marginal productivities)

for

men

of the

specified

quality,

y,

is

given

by S,

in

Figure

I. The

number

of

draft-affected

men

required

by

the

military

services is

N

4.

In

Figure

I

the

marginal

opportunity

cost

of ON

men

is

NB

;$/Yr

iSy

W

E

v

,oD

A

O

N T

Number

of

Men

FIGURE

A

Model

of Allocative

Costs

and Distributive

Effects

of

the

Draft

and

the

total

opportunity

cost

is

OABN

or

fSydN.

OABN

is

the

minimum

total

foregone

civilian

output

consistent

with

acquisition

by

the

military

services

of N

men of

quality

y,

given

the stock

of

4. We

retain

the

assumption,

from

Section

I,

that

manpower

needs

are

a

given

-

that

is,

they

are

determined

exogenously.

403


11/28

QUARTERLY

JOURNAL

OF

ECONOMICS

resources,

the

state

of

technology,

and

individual

preferences

-

in-

cluding preferences

between civilian

and

military

service

employ-

ment.

OV

(=

OABN

-

ON)

is

the

corresponding

minimum

average

foregone

civilian

output.

The distance OV

may

also be viewed as

an

estimate

of the

average

civilian

output

that

would

be

foregone

if

there were a

voluntary

system

of

military

manpower

procurement.

Thus,

if this

minimum

foregone

civilian

output

is

compared

with

actual

foregone

civilian

output

under

the

draft

system,

the

differ-

ence

represents

an

estimate

of the cost

of labor

misallocation

between

the

military

and civilian

sectors

of

the

economy--what

we have

termed the labor-mobility

allocative

cost

of

the draft.5

Actual

foregone

civilian

output may

be

derived

from

Figure

I

with

the

aid

of an

additional

assumption,

namely,

that the

existing

draft

system

makes selections

among

eligible

men without

reference,

in

general,

to

their

civilian

productivity

-

at

least with

respect

to

men within

each

quality

class.6

That

is,

the

selection

may

be

thought

of

as

essentially

a

random

drawing

from

the distribution

of

civilian

labor

productivities.7

If the N men selected are assumed to constitute a random selec-

tion

from

the

group

of

T men

(T

>

V)

of

quality

y

in the

popula-

tion,

their

average

foregone

civilian

productivity,

OM,

will exceed

OV

per

man,

as

long

as

Ty

>

Ny

and

Sy

is

not

infinitely

elastic

throughout

its

range.

The difference

between

the actual

and

mini-

mum

foregone

productivity

per

man,

OM

-

OV,

is

the

average,

the

per

man

labor-mobility

cost

which

results

from

the draft

system's

compulsory

selection

process,

combined

with

its

lack

of

regard

for

opportunity costs. The corresponding total labor mobility cost is

OMCN-OVDN.

At

this

stage

we

turn

to

the

model's

use

in

estimating

the

in-

come-distributive

effect

of the

draft

system,

in the form

of

the

implicit

income

tax

on

draftees.

We

have

already

derived

OMCN

as

the

total

foregone

civilian

productivity

of

draft-affected

men.

If

we assume

that

wages

in

the

civilian

economy

are

equated

with

the value

of

marginal productivity,8

then

OMCN

also

represents

gross

foregone

earnings

of draftees. The difference between these

gross

foregone

earnings

and

real

earnings

in service

is

the

net

fore-

5.

This assumes

implicitly

that

the value

of

on-the-job

training provided

to

servicemen

is

approximately

the

same

as that

which

they

would

have

re-

ceived

in

the

civilian

economy.

6.

Operational

measures

of

quality

are

discussed

in

Part III.

7.

This is

not

to

argue

that

the

selection

process

is

actually

random,

even within

education

classes,

but

only

that

such

an

assumption

seems

to

be

a useful and

reasonable

approximation.

8.

Because

of market

imperfections,

the

assumption

is not

entirely

valid.

404


12/28

ECONOMICS OF

THE

MILITARY

DRAFT

gone

earnings

of

draftees--their

implicit

income tax.

In

Figure

I

the

value

of

draftee's

earnings

in

service-including

income

in

kind (not only food, shelter, etc., but also the civilian value of

military

training

programs),

as well

as

in

cash-is

denoted

by

W;

W

is

assumed

to

be

the same

for

all

draftees,

regardless

of

their

civilian

earnings

opportunities.

The

difference,

OM

-

OW,

is

the

implicit

annual income

tax

per

draftee,

and,

of

course,

OMCN

-

OWEN

is the

total

implicit

tax

on

all

draftees.9

Thus far we

have

shown

how,

in

principle,

the

labor-mobility

costs and certain

income-redistributive

effects

of

the

draft can

be

estimated, taking military manpower needs as given. Now let us

modify

somewhat our

assumption

that

military

manpower

needs

are determined

exogenously.

Presumably,

military

manpower

requirements

relate to

the number

of

ready

men

(hereinafter

denoted

as

R),

not

merely

the number

in

uniform

(N).

That

is,

men

involved

in

training

-

either as

new recruits

or as

instructors

or administrators

of

these

new

recruits

-

are not

ready,

although

the

instructor-administrator

cadre

could

be

withdrawn

from

those

activities.

The

importance

of

the

distinction

between

ready

and

nonready

men

is that

the

higher

the

rate

of

manpower

turnover

in

the

services,

the smaller

will

be

the

fraction

of

men

in

uniform

(N)

who

are

ready,

and,

hence,

the

greater

N will have

to

be

to

provide

a

given

R.

The

presence

of

an

implicit

tax on draftees

causes

a

higher

turn-

over

rate

than

would

result

from

a

voluntary

system

with

competi-

tive wage rates, and thus the current type of draft system causes

N to

be

greater

than

it would

be

under

a

voluntary

system,

for

a

given

R.

This

means that

total

labor-mobility

costs,

as well

as the

total

implicit

income tax--both

of which

are

functions

of

N-

would

be

lower

under a

voluntary system.1

The

relationship

between

R

and

N can

be

stated

as follows:

1

1

N

=

-pN

+-pkN+R,

or

S

S

9.

In

principle,

W

could

exceed

M,

in

which

case

there

would

be

an

implicit

negative

ncometax

on,

or

positive

income

transfer

o,

draftees.

1.

Insofar as

there are

political

concerns

about

the

dangers

of

a

per-

manent

and

completely

professional

military

system,

t

would

not be desirable

to reduce

the

turnover

rates to

zero.

However,

the alternatives

are not

simply

a

zero

rate or the

high

current

rate;

rather,

there are

many

inter-

mediate

possibilities.

The

optimal

rate

would

require

a

balancing

of

the

political

and the cost

considerations.

t would

be

possible

o

rely

entirely

upon

a

voluntary ystem

and still

avoid

the

political

dangers

of

a

professional

ys-

tem

by

simply

requiring

he vast

majority

of

servicemen

o retire

after,

say,

ten years.

405


13/28

QUARTERLY

JOURNAL OF

ECONOMICS

R

N=

R

1-- (1

+ k)

8

where:

s

is

the

average

period

of

service

of

draftees,

in

months

(1/s

is

the

turnover

rate);

p

is the

training

period

for

draftees,

in

months;

k

is the ratio of

training

personnel

to

trainees;

and

N

and

R are as

previously

defined.

The

first term on

the

right-hand

side

of the first

expression

above

indicates the

number

of men

in

uniform who are

in

training

at a

given

point

of

time;

the

second

term indicates

the

number

of

instructors and

administrators,

which is assumed

to

be

a

fixed frac-

tion

of

trainees;

and the final term

indicates

the

number

of

ready

men.

It is

clear

from the

equation

that

if

the turnover

rate

(1/s)

were

reduced,

then N could be

reduced

for a

given R.

Or,

if

N were

held

constant,

R,

k,

or

p

could be

increased

-together

or

indi-

vidually

-

thereby raising the quantity or quality of ready military

personnel.

Thus,

additional

savings

would result from a

voluntary

system,

if

the

average

duration

of

service could be

lengthened.

III.

EMPIRICALAPPLICATION

In

this section

we estimate the

distributive effects and the

allocative costs

of

the

draft,

employing

the

model

just

described.

The estimates are based on three alternative sets of assumptions, in

order to

test

the

sensitivity

of the

estimates to

a

wide

range

of

pos-

sibilities. Each

assumption,

hereinafter

referred to as a

case,

in-

volves

a

different

interpretation

of

the

quality

of

military

man-

power

required,

but

in

all

cases

a

constant

number of

ready

men is

assumed.

The

three

cases are described

below.

Throughout,

the

potential

manpower

pool

is

regarded

as restricted

to those men

aged

eighteen

to twenty-four who are capable of meeting the physical and mental

standards established

by

the

military

services.2

Such

men

are

referred

to

as

eligibles

or

eligible

men.

Case

1: This

case

assumes

that the

military

productivity

of

men

differs

according

to their

quality

characteristics,

quality being

2.

This

age range

is used

only

to facilitate

the

empirical

work;

census

data

are

reported

for

this

age

bracket.

During

the

period

of the

early

sixties,

as well

as at the

time

of

this

writing,

the

actual

manpower

pool

was

from

age

181/2

to

26,

except

for

physicians,

whose

eligibility

continued

to

age

35.

406


14/28

ECONOMICS OF

THE MILITARY

DRAFT

measured here

solely by

years

of

educational

attainment.

It

as-

sumes

further that all

men of

a

given

educational

level are

equally

adequate

to meet the needs

of the

services, provided they

are

eligible

men.

Finally,

it

assumes that

the

current

education-age

distribution

of

military

manpower

is to

be

maintained.

Case 2: An

objection

to Case

1

is

that

all

eligible

men of

a

given

age

and educational

level

may

not be

equally productive

in

service.

Thus,

whereas

Case

1 assumed that

educational attainment

alone

was

an

adequate

measure of

military-manpower

quality

for

all

men needed

by

the

services,

Case

2

assumes that

it is

an

adequate

measure

for only 75 per cent of them. For the other 25 per cent,

civilian

income

potential

is also

regarded

as

an

indicator

of

quality,

i.e.,

those

men

with

higher

income

potential

are assumed

to

have

higher

productivity

in

the

service.

And,

as

in

Case

1,

the

current

education-age

distribution

of

military

manpower

is

held constant.

Case

3: For

contrast,

a much

less

stringent

case

is

examined.

This

case

assumes

that the

military

services

find all

eligibles

equally

acceptable,

irrespective

of

differences

in

level

of

education

and

civilian incomes.3 We therefore relax the assumption that the cur-

rent

education-age

distribution

of

servicemen is

held

constant,

though

the

number of

men is

still

maintained.

For

each

of these

cases

-

that

is,

for

each

set

of

assumptions

about

military-manpower

quality

requirements-the

distributive

effects

and the

(labor-mobility)

allocative costs

are estimated.

The

manner in

which

this

is

done is summarized

below,4

by

presenting

empirical

counterparts

to

the

concepts

presented

in

Section

II

and

Figure I. The Sy curve in Figure I is now represented by the

cumulative

distribution of

actual civilian

incomes

of

males

aged

18-24

in

1959,

as obtained from

Census

publications,

but

adjusted

to

full-year

bases.

Actually,

five such

distributions,

S,

curves,

were

utilized,

one for each of five

level-of-education

groups:

0-8

years,

9-11

years,

12

years,

13-15

years,

and

16

or more

years.

The

positive intercept,

OA,

reflects

the

assumption

that

men with in-

comes below

that level

are

rejected

for

military

service. This

results

from the obviously simplifying assumption that those men unable

to

meet

physical

and mental

standards have the lowest

civilian

in-

come

opportunities

among

men

in

their

age

and

educational

group.5

3.

While

the

need for some

high quality

personnel

is

recognized,

it

may

be

assumed

that

such

personnel

are obtained

through

normal

enlistment

channels.

4.

Additional details

are

presented

in an

appendix,

available on

request

from

the

authors.

5.

The

education-specific

rejection

rates are:

grade

school

graduates

or

less-70

per

cent;

1-3

years high

school-32

per

cent; high

school

gradu-

407


15/28

QUARTERLY

JOURNAL OF

ECONOMICS

The

number of

men of each

quality,

y,

required,

ON

in

Figure

I,

is

the

difference between

the number of

draft-age

men in

the

services

and the

number

who

have

voluntarily

enlisted.

Since

such

volunteers

are

presumably

better

off because

of

their

choices,

we are

concerned

only

with the

remaining

group

when

estimating

the

distributive

effects

and

allocative costs

of

the draft

system.

This

remaining

group, numbering 650,000

in

fiscal

year

1963,

consists

of

182,000

draftees,

plus

an

estimated

468,000

draft-affected

en-

listees

who would

not have enlisted but

for

the existence of

the

draft.

Draft-affected enlistees

have

been estimated

to constitute 40

per

cent of total first enlistees.6

Let us

now

present

the

empirical

values

for

the

key

variables

shown

in

Figure

I.

In

doing

this,

we

shall

give

only

the

values

ag-

gregated

over all

education

groups; thus,

for

purposes

of the en-

suing

discussion,

the

AS,

curve

of

Figure

I

should

be

interpreted

as

a

summation of

the five

AS,

curves.

It

should

be

noted that our

empirical

method abstracts

from

any disutility

associated

with

employment

in

the

military

services. This

point

is

discussed further

in Section IV.

The

distance

OW, average

annual

compensation

(including

in-

come

in

kind)

of

draft-affected

men,

is

estimated at

$2400

in

1959.7

OV,

the mean

annual minimum

civilian income

per

male

aged

18-

24,

varies

with

educational

level,

but

averages

almost

$2100.

OM,

the mean

annual

gross foregone

income

per

draft-affected

man

currently

in

service,

also

varies

with educational

level,

but

averages

around

$3900.

Given the quality assumptions of Case 1, OABN, the smallest

total

foregone

civilian

productivity

at which ON

men

can

be

ob-

tained,

is

some

$1.3

billion

per year. Then,

assuming

that the

draft

system

takes

men

randomly

from within each of

the

five

distribu-

tions, ASy,

the

actual

foregone

civilian

productivity,

OMCN,

is

in

excess of

$2.5

billion

per year.

The

difference,

VMCD

(=

AMCB),

ates-

26

per

cent;

1-3

years

college--18 per

cent;

college graduates--16

per

cent;

overall

average-36

per

cent.

(Source:

unpublished

Defense De-

partmentdata.)

6. For a

full discussion

f

the

method

used

to

estimate the numberof

draft-affected

nlistees,

ee the

appendix

eferred

o

in

fn.

4,

p.

407.

7. The

$2,400

igure

appears

o have been

reasonably

onstant

between

1959

and

1962,

he

period

o whichour various

data

apply.

It

shouldbe noted

that the

$2,400

igure,

while

quite comprehensive,

oes

not

include

any

valuationof

training

received

in

service.

However,

to

the

extent that

draft-affected

men are

in

service

for

only

a rathershort

period,

any training-of

the sort that has value

in

the

civilian

economy-that

they

do

receive

may

not be

significantly

reater

han

the

on-the-job

raining

and

experience

eceived

by

civilian

workers. It is

only

this

difference

hat

shouldbe

addedto the

$2,400 igure.

408


16/28

409

CONOMICS

OF THE

MILITARY

DRAFT

the estimated

excess allocative burden

of the

draft,

is

nearly

$1.2

billion

per

year,

as shown

in Table

I.

In Case 1 the distributive effect of the draft, the difference

between

actual service

income and

foregone

gross

civilian income

for

all

education

groups,

is OMCN

-

OWEN,

or

roughly

$2.5

bil-

lion

minus

$1.5

billion-

slightly

below

$1

billion

per year.

TABLE

I

ANNUAL

DISTRIBUTIVE

EFFECTS

AND

ANNUAL ALLOCATIVE COSTS

*

OF MILITARY DRAFT

SYSTEM,

TOTAL

AND

PER

MAN,

1959

(in dollars)

Total Costs

(millions)

Cost Per Man

Illustrative Case

Distributive Allocative Distributive Allocative

Effects Costs

Effects Costs

(1) (2)

(3)

(4)

Case 1

960

1,180

1,480 1,820

Case 2

960

870

1,480 1,350

Case

3

990

1,120

1,520

1,730

*Includes

only

labor-mobility

effect.

In

Case

2

the

distributive

effects

are identical

with

those in

Case

1,

since

in

both

cases

the

rate of

military pay

is

the

same,

and it is

assumed

that

the

draft

system

takes

men

at

random

from

within

each

distribution,

AS,. However,

the allocative

costs

are

substan-

tially

lower. For

it

is assumed

that

with

respect

to 25

per

cent

of

the men

selected,

the

difference between their

civilian and

military

productivity

is

zero;

and

the

military

is

assumed

to

require

this

fraction of high productivity (high income) men. In Case 1 no such

requirement

is

assumed

-

although

in

both cases

some

high

income

men are

obtained

through

the random

selection

process.

We

turn now to

Case

3.

If

military

manpower

needs were

simply

for men

who

could

meet

the induction

standards

of

1963

-

the

year

to

which our

manpower

data

apply-

then

qualitative

characteristics such

as

education

and

civilian income

(productivity)

opportunities

could

be

disregarded.

In

this

case, application

of our

model would require only a single distribution of earnings for all

men

eighteen

to

twenty-four

and

an

aggregate

rejection

rate. The

procedure

for

estimating

labor-mobility

allocative

costs

and

distri-

butive

effects

is

then identical with that used

in

Case 1.

Table

I

shows,

somewhat

surprisingly,

that these

costs

and

effects

are

very

nearly

the same for Cases

1

and

3. Two

forces

operate

to

produce

this result for the allocative

costs.

First,

be-

cause the

educational distribution

of

military

personnel

does

not


17/28

QUARTERLY

JOURNAL

OF ECONOMICS

differ

significantly

from

that for all

males

in

the

draft-age group,

the

level

of

foregone

civilian

earnings

in

Case

3

is

very

close to

that

in

Case

1.

Second,

the fact that

in

Case

3

the

minimum-earnings

cut-

off

(NB

in

Figure

I)

is

implicitly

the same for all education

groups,

while

it

varies

from

group

to

group

in Case

1,8

gives

rise to

only

a

small

change

in

the

minimum

opportunity

cost

of

the draft.9

The

net

impact

of

these

forces

causes

a

slight

reduction

in

total

alloca-

tive

cost in

Case 3.

The distributive

effect

differs

slightly

in Case

3

(relative

to both Cases

1 and

2),

because

civilian

incomes

(op-

portunity

costs)

change

as

a

result

of

dropping

the

assumption

that

the

current

education mix is

held

constant.

In

reviewing

the results of

Table I--the

range

of which

is

rather modest

-

three

points

should be

remembered.

(1)

Only

those


of

the

military

draft

system

resulting

from

the

implicit

income

tax

which

the draft

imposes,

and

only

those

alloca-

tive

costs

of the

military

draft

system

stemming

from restrictions

on

labor

mobility,

have been considered.

(2)

The distributive

effects

and allocative

costs

shown

are not

additive,

since

the

latter

are real costs, while the former are transfers. (3)

All

of

the

esti-

mates

are

based

on 1959

income

data,

even

though

the

1963

dis-

tribution

and mix

of servicemen

are

used.

In

deriving

the results

presented

in Table

I it was

pointed

out

that

the number

of men

required

for

the

services

was

held constant.

However,

it

was also

pointed

out

earlier

in the

paper

that if

we

assume

that the

number

of

ready

men,

rather

than

the total

number

of men

in

service,

is

to

be held

constant,

then

a smaller

total num-

ber of servicemen would be required if the rate of turnover could be

reduced

-

as it would

be

under a

system

offering

more attractive

rates

of

compensation.

At

this

point

we use

the turnover

model

presented

in

Section

II to

re-estimate the values

in Table

I,

under several

different

as-

sumptions

about

the

relevant

parameters

of the

model.

If

in this

model we hold

all

variables

constant

at

their

current

values,

and

allow

only

length

of

service,

r,

to

increase

-

as it

would

if the turn-

8. The minimum average (per draftee and nonvoluntary enlistee) income

that would

have

to be

paid,

or-

equivalently--the

minimum civilian

pro-

ductivity

that would have to

be

foregone

in

order

to obtain

the 1963

num-

bers

of men

with

the 1963

educational

attainments,

is as follows:

grade

school

-$2,980;

1 to 3

years

of

high

school-$2,100;

high-school

graduate-

$2,050;

1

to 3

years

of

college--$1,630;

college graduate-$1,680;

and a

weighted

total--

$2,060.

One

possible

implication

of

differential cutoffs

is

discussed

in

Section

IV.

9.

The

minimum

income cutoff

for all men is

$2,010.

This

cutoff

must

fall

below the

$2,060 figure

referred

to

in the

previous footnote,

because

a

uniform cutoff

minimizes

the

aggregate

minimum

foregone

income

(opportunity

costs)

for the

given

level of

manpower

obtained.

410


18/28

ECONOMICS

OF

THE MILITARY DRAFT

411

over rate

were

cut

-

then

the number of

men

needed, N,

is

reduced

by

the amounts indicated in column

1

of Table II.

Columns

3

and

4

indicate

how

much

the total

labor-mobility

allocative costs

and

the

total


shown

in Table

I

would

be

reduced as

duration

of

service is

increased. It

should

be borne

in

mind that

average

duration of service

could

be

increased

in

various

ways,

not

only by

enlarging

rates

of

compensation,

but also

by

extending

the current

two-year

draft

period.

TABLE II

ANNUAL ALLOCATIVEAND DISTRIBUTIVE EFFECTS OF. REDUCED

TURNOVER

OF

MILITARY MANPOWER

Reduction

in Number of

Draft-Affected

Men

in Annual Reduction

*

in

Service

(compared

with

Average

Years

the

650,000

in

service

Allocative Distributive

of

Service

in

1963)

Costs Effects

(in

millions (in

millions

Total

Per

cent

of

dollars)

of

dollars)

(1)

(2)

(3) (4)

2

0 0

0

0

3 36,000 6 66 53

5

62,000

10

113

92

10

80,000

12

146

118

20

86,000

13

157

127

*

From

total amounts

shown in Table I for

Case

1.

IV.

SOME

EXTENSIONS OF

THE ANALYSIS

In this section we point out several implications of the con-

cepts

and

findings

discussed

in

this

paper.

Our

objective

is to be

provocative

and to

suggest

questions

for further

investigation,

rather

than to offer definitive conclusions.

Particular

caution should be

exercised

in

interpreting

the

quantitative

results in this

section,

for

they

are

crude,

being

based

on

incomplete

data and

assump-

tions that

may

require

reconsideration.

Nevertheless,

some

of

the

results

are indeed

striking

and

may

warrant

further

refinement.

A.

The

Relative Value

of

Educated

Manpower

to the Civilian

and

Military

Sectors

If

it is assumed that

the

military

services have

the

educational

mix

of men

that is

optimal,

in the

sense

of

equating

the

marginal

military productivities

of

men in

all of the

educational

classes,

then

the

findings

in

Part

III

(including

footnote

8,

p.

410)

concerning

differential

earnings

cutoffs

imply

that a

college-educated

man who


19/28

QUARTERLY

JOURNAL

OF ECONOMICS

can

earn as

little

as

$1600

per

year

in the civilian

economy

is

just

as

valuable

in the service

as

the

elementary

school educated

man

who

can

earn

as

much as

$3000

in the civilian

economy.

Thus,

formal

education

is

being

treated

as

relatively

more valuable in the

military

service than

it is

in

the

civilian

economy.

In

a

modern

military

system

such

a

conclusion is not

implausible,

if

it is true

that the

technology

now

employed by

the

military

is

more

demand-

ing

of the

skills

of well-educated

men than

is the

average technology

employed

in

the

civilian

sector.

Some

notion as

to

whether the

military

services

are

using

more

advanced

technology

than

the

civilian

economy

in

general might

be

obtained

by

determining

whether the

capital/labor

ratio

in the

military-service

sector

is

higher

than

it

is

in

the civilian

sector

of

the

economy.

If

it

is,

we would seem

to have

found

a

justifica-

tion

for the observed

differential

income cutoffs

according

to

educa-

tional

attainment.

The

data

shown

in Table

III on

capital/labor

ratios

for the

military

versus

the civilian

sectors

of

the

economy

are

consistent

with the hypothesis that the ratio of physical capital to labor is

higher

in

the

military

sector.

Measured

by

gross

capital

stock

per

man,

in

constant

dollars,

the

military

capital/labor

ratio

is

double

that

for the civilian

sector.

Measured

by

net

capital

stock

2

per

man,

in

constant

dollars,

the

military

capital/labor

ratio

slightly

exceeds

that

for the

civilian sector.3

Another

test

might

involve

making

a

comparison

of

the

occupa-

tional

distribution of

servicemen

(and

particularly

the

army)

with

that for the labor force as a whole. Unfortunately, the needed data

are not

available,

but

if

they

were,

we would

expect

to

find a

higher

proportion

of

military

personnel

concentrated

in

heavily

capital-

using occupations.

In

summary,

the

available

data do

not

run

counter to

the

notion that

military

technology

is

more

capital-using

and

thus,

perhaps,

more

demanding

of

the

skills

of

at

least some better

educated

men.

But

additional work

is

required

to

give

this con-

clusion a firmer basis.

1.

Undepreciated apital

stock;

for a discussion

of

this

concept

see

Raymond

W.

Goldsmith,

The National Wealth

of

the

United

States

in

the

Postwar

Period

(Princeton:

Princeton

University

Press,

1962).

2.

Gross

capital

stock

less

capital

consumption

llowances.

3. It is

worth

pointing

out that from

the

mid-1950's

ntil

at least

1958,

military

capital/labor

atios

were

rising

more

rapidly

than were those

in

the

private

economy.

For

example,

rom

1955

to

1958

the

military capital/labor

ratio

rose

by

about 13

per

cent

on

a

net

capital

stock basis

(or

11

per

cent

on

a

gross

basis),

as

contrastedwith

a

5

per

cent

rise on a

net

basis

for the

civilian

ratio.

For

data,

see

the source

or

Table

III.

412


20/28

ECONOMICS OF

THE

MILITARY DRAFT

TABLE

III

CAPITAL/LABOR

RATIOS,

CIVILIAN

AND

MILITARY

ECTORS,

958

(in

constant

1947-49

prices)

Capital

Stock

Labor Force

Sector

(in

$

billions)

(in

millions)

Ratios

Gross

Net

Gross

(1)/(3)

Net

(2)/(3)

(1)

(2)

(3) (4)

(5)

Military

130 44 2.6

50

17

Civilian

1,715

1,022

68.6 25 15

Sources: Capital Stock: Raymond W. Goldsmith The National Wealth of the United

States

in

the Postwar

Period

(Princeton:

Princeton

University

Press, 1962).

Tables

B-172

(sum

of cols.

1-3)

and

B-174

(sum

of cols.

1-3)

for

military, gross

and

net,

respectively;

and

Tables A-26

(col.

1)

and

A-28

(col.

1),

for

civilian,

gross

and

net,

respectively.

Labor Force: Economic

Report of

the

President,

Jan.

1966,

Table C-20.

B.

The

Military

Manpower

Supply

Curve

One of

the

analytical

tools

developed

in

this

paper

can be

used

to shed

light

on the

nature

of the

supply

curve

for

military

man-

power

and

on

the

extent of aversion

to

or

preference

for

military

service

as

compared

with civilian

employment.

The

key

concept

is

the

opportunity

cost

curve

portrayed by

AS,

in

Figure

I.

This

curve can be

interpreted

as

a

special

type

of

labor

supply

function

for

military

manpower,

under

the

assumption

that

men will

work

for

whatever

employer-military

or

civilian-pays

the most

(either

in

cash or

in

kind)

or,

in

other

words,

that men

have neither

an aversion

to

nor

preference

for

military

employment.

In

this

sec-

tion we present this type of special labor supply curve based on an

aggregate

of

Sy

curves

in

Figure

I,

and

subsequently

use it

to

de-

velop

several estimates

of actual labor

supply

curves.

The

first

problem

is

to

determine the

shape

of

the

opportunity-

cost

(supply)

curve

for

the

relevant

range

-

namely,

between

the

number

of enlisted

men of

draft

age

currently

in

the services

and

the

number that

we estimate would

be

in

the service

voluntarily

(i.e.,

if

there

were

no

draft).

This

range,

650,000,

is the number of men

for whom supply responses to wage increases are important.

In

Figure

II,

AS*y

portrays

this

opportunity-cost (supply)

curve. Point

A

indicates

that if additional

men of

acceptable

quality

are to be

obtained, they

will have

to be obtained at a

civilian

op-

portunity

cost of at least

$1800.4

The

remainder

of the

curve

AS*y

4.

This follows

from our

assumption

that

rejectees

have the lowest

civilian

income

opportunities

i

lee hansen

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