Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records

Estimates of the effect of veteran status on civilian earnings may be biased by the fact that certain types of men are more likely to serve in the armed forces. In this paper, an estimation strategy is employed that enables measurement of the effects of veteran status while controlling for differences in other personal characteristics related to earnings. The randomly assigned risk of induction generated by the Vietnam era draft lottery is used to construct instrumental variables that are correlated with earnings solely by virtue of their correlation with veteran status. Instrumental variables estimates tabulated from Social Security Administration records indicate that in the early 1980's the earnings of white veterans were approximately 15 percent less than nonveteran earnings. In contrast, there is no evidence that nonwhite veterans suffered any lasting reduction in earnings. In an attempt to explain the loss of earnings to white veterans, experience-earnings profiles are estimated jointly with time-varying veteran status coefficients. The estimates suggest that the effect of Vietnam era military service on white veterans is equivalent to a loss of two years of civilian labor market experience.