Educational Attainment And Compensation Of Enlisted Personnel

2EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNELDoD, consistent with the position of the Ninth Quadrennial Review of Military Compensation and otheranalyses, has cited those trends as grounds for providingmidcareer and senior noncommissioned officers with annual pay raises that exceed those planned for the militaryoverall.4 For example, Under Secretary of Defense DavidChu told the Congress in 2003 that pay raises targeted tomidcareer and senior enlisted personnel were necessarybecause “increased educational attainment on the part ofthe enlisted force has made the existing military paystructure less competitive.”5Supporters of targeted raises do not maintain that DoDneeds an enlisted force with greater formal education (although some senior leadership positions in that force areoften held by people with postsecondary degrees and maybenefit from the capabilities that formal education provides). Instead, they argue that in the past, when manyhighly capable young people did not have access to highereducation, DoD could attract and retain the quality ofpersonnel it needed without offering in-service educational opportunities or the pay that education commandsin the private sector. It needed only to offer a similar payprofile to that for high-quality high school graduates inthe private sector. But today, the argument goes, DoDmust draw and retain personnel from a more highly educated population to meet its quality goals for the enlistedforce.DoD’s targeted raises are designed to make the cash earnings of midcareer enlisted personnel (like those of similarly educated civilians) rise more steeply with years ofservice.6 In 2004, DoD’s long-term budget plans calledfor continuing targeted pay raises through 2006. Thegoal was that by 2006, regular military compensation(RMC) for midcareer enlisted personnel would equal thewages and salaries of the 70th percentile of civilian work4. See Department of Defense, Office of the Under Secretary ofDefense for Personnel and Readiness, Report of the Ninth Quadrennial Review of Military Compensation, vol. II (May 2002),available at www.dod.mil/prhome/qrmc/v2/index.htm.5. Statement of David S.C. Chu, Under Secretary of Defense forPersonnel and Readiness, before the Total Force Subcommitteeof the House Armed Service Committee, March 13, 2003. In arecent interview, however, Under Secretary Chu noted that because of the “pressure of current operations,” there was growinguncertainty about targeted raises in the next year or two. See RickMaze, “No Targeted Pay Hikes in ‘05,” Army Times, February 9,2004, p. 10.6. They could also provide an incentive for retention to more-juniorpersonnel.ers with similar years of work experience and some college education.7 (The lack of targeted pay raises in thePresident’s 2005 budget indicates that those plans are being deferred or possibly changed.)The Cost of Targeted RaisesBesides their annual cost in the DoD budget, raises targeted to midcareer and senior enlisted personnel have expanded the unfunded liability of the military retirementsystem.8 The targeted raises given in 2000, 2001, and2002 have increased that system’s unfunded liability byapproximately 5 billion (the increase resulting from theraises in 2003 and 2004 has not yet been determined).9Under the current accrual system for military retirement,the unfunded liability rises when senior personnel—whoare about to retire and receive pensions based on theirhighest three years of earnings—get percentage pay increases that exceed those for more-junior personnel.The cost of the higher pensions for people about to retireis covered by the Treasury rather than by DoD.10 Thus,targeted pay raises are less expensive, and possibly moreattractive, to DoD than they are to the federal government as a whole.7. Regular military compensation is the sum of basic pay, allowancesfor housing and subsistence, and the federal tax advantage thataccrues because those allowances are not taxed. For more information on the structure of military pay, see Congressional BudgetOffice, What Does the Military “Pay Gap” Mean? (June 1999); fordetails about the military’s noncash benefits, see CongressionalBudget Office, Military Compensation: Balancing Cash and Noncash Benefits (January 16, 2004).8. The military retirement fund holds government securities that are,in effect, intragovernmental IOUs. Thus, all future military retirement costs are unfunded in the sense that they are yet to be paidby taxpayers, but there is no fund of accumulated assets that canbe tapped. However, this paper uses the term “unfunded liability”as it is used conventionally in government budgeting—that is, thedifference between the liability of the retirement system and thevalue of the government securities held, for bookkeeping purposes, by that system.9. The 5 billion figure is an estimate by the Congressional BudgetOffice based on data for enlisted personnel provided by DoD’sOffice of the Actuary.10. Accrual charges are set as a percentage of basic pay so that payments over the life of an incoming cohort of recruits are expectedto cover the cost of that cohort’s eventual retirement. A large,unexpected increase in pay at the end of a cohort’s career willmean that the contributions made on behalf of that cohort willnot equal the actual cost of the cohort’s retirement, increasing theliability to be paid by the Treasury.

EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNELAn Alternative View of Rising Education LevelsThis paper offers an alternative perspective on the implications that educational trends among enlisted personnelhave for compensation. The pay of the enlisted force roserelative to that of similarly aged and experienced highschool graduates in the private sector during the 1980sand 1990s.11 Increases in the educational attainment ofmidcareer and senior enlisted personnel in recent yearsmay be a signal not that pay must rise to be competitivebut that the total level of military compensation is increasingly attractive not only to high school graduates butalso to people with some postsecondary education.The statistical analysis performed for this paper providesno evidence that among senior enlisted personnel (thosewith 12 to 17 years of service), postsecondary educationreduces their retention. Moreover, because many seniorpersonnel pursue additional education, the proportion ofthe enlisted force with postsecondary education risessharply with both years of service and pay grade. Growthover time in the percentage of senior enlisted leadershippositions held by people with associate’s or bachelor’s degrees could be an indication that DoD is increasingly successful in meeting its needs for high-quality, educated enlisted leaders.Previous research by CBO questions the value of using civilian benchmarks to set military pay, given the significant differences between civilian and military life.12DoD’s ability to meet its personnel requirements is thebest indicator of whether pay is competitive, particularlyin a period of conflict when more is being asked of military personnel.Nonetheless, if pay comparisons are to be made, a comprehensive approach would take into account retirementpay and medical benefits in both the military and civiliansectors. Using such an approach, CBO finds that the costto DoD of compensating an enlisted service member already exceeds the cost to a private employer of compensating a civilian who has some college education and is in11. See Beth J. Asch, James R. Hosek, and John T. Warner, “AnAnalysis of Pay for Enlisted Personnel,” and James Hosek, “ARecent History of Military Compensation Relative to Private Sector Compensation,” both in Department of Defense, Office of theUnder Secretary of Defense for Personnel and Readiness, Report ofthe Ninth Quadrennial Review of Military Compensation, vol. II(May 2002).12. See, for example, Congressional Budget Office, What Does theMilitary “Pay Gap” Mean?the 70th percentile of earnings (DoD’s goal). Instead, thetotal employment cost of an enlisted member is comparable to that of the median civilian worker with a bachelor’s degree.13 Moreover, although RMC is relatively flatduring the midcareer years, the financial advantage ofcontinued military service—taking into account retirement benefits—rises much more sharply than do thewages of comparable civilian workers.Policies to Enhance the Quality of the Enlisted ForceAlthough senior military leaders acknowledge that thequality of today’s enlisted force is unsurpassed, recruitingand retention can change quickly because of shifts in thecivilian economy and in the demands that the militaryplaces on service members. In the future, DoD couldhave trouble maintaining the quality of its enlisted force.Moreover, as technologies and military doctrine change,it is also possible—though by no means certain—thatmany tasks now performed by high school graduatescould require greater formal education.Even in that case, however, setting benchmarks for military pay might not be a cost-effective practice. Analysts atthe RAND Corporation, the Center for Naval Analyses,CBO, and elsewhere have identified several more-focused—and thus potentially less costly—policies that DoDmight use if it needed in the future to improve the qualityand performance of the enlisted force.14One option would be to increase the importance of promotions, as opposed to longevity, in the pay table. Another would be to boost the speed at which the best-performing personnel were promoted. That approach mightrequire increasing the percentage of E-8 and E-9 personnel in the force, as well as introducing an E-10 pay gradeso that people promoted early to E-9 could still have theopportunity for career growth. Still another alternativewould be to widen the range of career paths by expanding13. That employment-cost approach values retirement pay and medical benefits at their expected present discounted value. The valueof retirement benefits from a service member’s perspective will bemuch greater for those who actually reach retirement and zero forthose who do not.14. See, for example, Congressional Budget Office, The WarrantOfficer Ranks: Adding Flexibility to Military Personnel Management(February 2002); Congressional Budget Office, Military Pay andthe Rewards for Performance (December 1995); and Aline Questerand Sgt. Major Gary Lee (ret.), “Senior Enlisted Personnel: DoWe Need Another Grade?” (briefing by the Center for NavalAnalyses, December 2001).3

4EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNELFigure 1.Percentage of Enlisted Personnel Who Report Having One or More Yearsof College Education, by Years of Service(Percent)1004 or Fewer Years905-6 Years807-10 Years7011-14 Years15-16 Years6017-20 Years5021 or More Years403020100198519921999Source: Congressional Budget Office based on the Defense Manpower Data Center’s Survey of Active Duty Personnel, 1985, 1992,and 1999.current programs that allow enlisted personnel to becommissioned as officers or warrant officers. Only the officer commissioning programs would be aimed directly atpeople with postsecondary education. Nonetheless, because education is positively correlated with job performance, all of those policies could increase the quality ofthe force and, incidentally, the attractiveness of the military to enlisted personnel with postsecondary education.Trends in Educational AttainmentThe Educational Characteristicsof the Enlisted Force and theImpact on RetentionMany of today’s enlisted personnel gained their postsecondary education while on active duty. About 60 percentof enlisted personnel surveyed in the Defense ManpowerData Center’s 1999 Survey of Active Duty Personnel reported having no more than a high school-level educationwhen they began their military service.15 By the time ofEducational attainment within the enlisted force is clearlyrising (see Figure 1). However, the statistical evidenceabout the impact of rising education on the retention ofenlisted personnel is inconclusive.The enlisted force is far more educated today than it wastwo decades ago. In 1985, 30 percent of all enlisted personnel had one or more years of college education. By1999 (the most recent year for which reliable survey dataare available), that share had more than doubled to 74percent—53 percent with some college credits but no degree, 12 percent with associate’s degrees, 8 percent withbachelor’s degrees, and 1 percent with advanced degrees.15. The services’ recruiting records indicate that at least 90 percent ofnew recruits have a high school-level education. However, the1999 survey data indicate that many of those recruits also have atleast some college credits.

EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNELFigure 2.Change in the Educational Attainmentof the Enlisted Force Since Enteringthe Service(Percent)70Education at Entry60Education at Timeof Survey egreeBachelor'sDegreeAdvancedDegreeSource: Congressional Budget Office based on the DefenseManpower Data Center’s 1999 Survey of Active DutyPersonnel.the survey, however, only 23 percent remained at thatlevel (see Figure 2). The armed services offer enlistedmembers a variety of education benefits, some of whichcan be used after leaving the military and some of whichcan be used while serving (for more details about thosebenefits, see Box 1). The ability to gain education whileon active duty means that educational attainment generally rises with years of service (see Figure 1). It also riseswith pay grade (see Figure 3 on page 8). For example, although 50 percent of enlisted personnel with more than20 years of service have at least an associate’s degree, thefigure for the subset of E-9 personnel with more than 20years of service is 60 percent.The Relationship Between Education and RetentionThe implications of those trends depend in part on theeffect that education has on the retention of high-qualitymilitary personnel. Some enlisted members who obtainpostsecondary schooling will leave the military to take advantage of their increased civilian opportunities or to finish their education using the Montgomery GI Bill. At thesame time, however, the military’s efforts to increase inservice education benefits could attract some high-qualitypersonnel who value those opportunities and who mightchoose to remain in the military to take advantage ofthem.16To provide some insight into the association between education and retention, CBO conducted a statistical analysis of the retention decisions of three groups of servicemembers—early-career enlisted personnel (those with 3to 6 years of service), midcareer personnel (7 to 11 yearsof service), and senior personnel (12 to 17 years of service). For each group, CBO used logit equations to estimate the probability that individuals nearing a decisionpoint for reenlistment would remain in the military. Theanalysis employed a specially constructed data set fromthe Defense Manpower Data Center that combined survey and administrative data (see Box 2 on page 9). Sample sizes for the groups ranged from about 500 to 900.The analysis controlled for the effects on reenlistment behavior of a wide range of personal characteristics, including race, sex, and whether the individual was in an exceptionally high pay grade given his or her years of service.However, the primary purpose of the analysis was to determine whether service members with postsecondary education—some college course work, an associate’s degree,a bachelor’s degree, or higher—were more or less likely toleave the military than otherwise similar members withno more than a high school education. The analysis wasalso designed to determine whether acquiring that education while on active duty, as opposed to before enlistment, had any impact on retention.CBO found that in the case of personnel with 12 to 17years of service, there was no meaningful statistical evidence that education had any effect on retention. (Theeducation coefficients in the equation were all statisticallyinsignificant and had a mix of positive and negative signs;see Table A-2 in the appendix.) That result was expectedgiven that for personnel with those years of service, theprospect of retirement benefits offers a strong incentivefor reenlistment.For personnel with 7 to 11 years of service, there was limited evidence that those with postsecondary education—about 80 percent of the members with those years of service—are less likely to remain in the military than otherwise similar individuals. (In the equation for that group,five of the six coefficients on the education variables were16. See Federico E. Garcia, Capt. Ernest H. Joy, and David L. Reese,Effectiveness of the Voluntary Education Program, CRM 98-40(Alexandria, Va.: Center for Naval Analyses, April 1998).5

6EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNELBox 1.Voluntary Education Benefits for Enlisted PersonnelEnlisted personnel in the Army, Navy, Air Force, andMarine Corps receive a number of voluntaryeducation benefits. Those benefits can be broadlyclassified as tuition-support programs or creditconversion programs. Tuition-support programshelp defray the cost of education before, during, orafter active duty. Credit-conversion programs enableenlisted personnel to use courses, occupational training, and on-the-job skills as credit toward a collegedegree or vocational certificate. Some of the majorexamples of both types of programs are describedbelow.The best-known education assistance program is theMontgomery GI Bill (MGIB). Administered by theDepartment of Veterans Affairs, the GI Bill provides36 months of education assistance to participants,up to approximately 1,000 per month. Althoughactive-duty personnel can participate in the program,most MGIB funds go to military veterans. MGIBbenefits can be used for degree and certificate programs, flight training, apprenticeship or on-the-jobtraining, license and certification tests, and correspondence courses. When used in conjunction withMGIB, the service college fund (“kickers”) programscurrently offered by the Army, Navy, and MarineCorps provide up to about 50,000 in total assistance. (Kickers are enlistment incentives designed toattract qualified personnel for critical and hard-to-filloccupational specialties.) In 2002, more than320,000 veterans and service members trained underthe GI Bill.negative, and two of the six were statistically significant,albeit weakly). For that particular sample, acquiring abachelor’s degree while on active duty was associated witha reduction of 35 percentage points in the probability ofreenlistment, compared with similar individuals who hadonly a high school degree (see Table 1 on page 10).17 Service members who earned a bachelor’s degree or higher17. Because of the large standard error, the true effect of educationcould be much lower or higher than indicated by the estimatedcoefficient.The mainstay of education benefits during activeduty is the Military Tuition Assistance (TA) program. The same for all of the services, TA providestuition and fee assistance for voluntary, off-duty college courses and degree programs. Participants are restricted to a maximum of 250 per semester unit oftuition assistance, or up to 4,500 of aid per fiscalyear. Twenty percent of the active-duty force usedTA benefits in 2002. MGIB participants are also eligible for the Tuition Assistance Top-Up Program, inwhich the Department of Veterans Affairs pays tuition and fees not covered by TA, up to the monthlyMGIB benefit. More than 30,000 service membersreceived benefits under Tuition Assistance Top-Up in2002.For active-duty personnel with existing college debts,the Army, Navy, and Air Force offer loan repaymentprograms to assist in paying off federally insured student loans. Payment details vary by service. For example, the Army pays either one-third of a participant’s debt or 1,500—whichever is greater—foreach year of service (a three-year enlistment is required).Because of frequent relocations, active-duty enlistedpersonnel may have trouble using tuition-supportprograms to the full extent possible. To alleviate residency requirements, DoD created the Servicemembers Opportunity Colleges (SOC) program. SOCcomprises about 1,700 colleges and universities thatoffer associate’s, bachelor’s, and graduate-leveldegrees to service members. The schools agree towhile on active duty account for just 3 percent of enlistedpersonnel with 7 to 11 years of service, but they make up8 percent of the people in that group who receive exceptionally rapid promotions and thus might be consideredthe best performers.18 Moreover, further investigation18. Another 3 percent of people with those years of service had acquired a bachelor’s degree or higher before entering active duty,but the estimated effect on retention of entering with a bachelor’sdegree, although negative for those years of service, was not statistically significant.

EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNELB

CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE A PAPER FEBRUARY 2004 . Navy and was taken by Photographer's Mate 3rd Class Heather Warick. Preface O ver the past two decades, the proportion of enlisted service members—particularly midcareer and senior enlisted personnel—with some postsecondary education has increased. The .