Compulsory Military Service and Future Earnings: Evidence from a Quasi Experiment
Friday, 17 April, 2015

On Thursday, April 16th, Muhammad Asali, ISET’s resident faculty member, presented his paper, named “Compulsory Military Service and Future Earnings: Evidence from a Quasi Experiment” to the ISET community.

Military service can have either positive, negative, or no effect on the future earnings of former military servants. On the one hand, military service keeps people out of the labor market and therefore, harms their labor market skills, resulting in lower wages afterward.

On the other hand, it might help acquire some new skills (e.g. discipline) which are needed in the labor market and therefore, benefit the former military servants in terms of earnings. There is little consensus in the literature about this relationship.

Professor Asali’s study contributes to this literature by trying to estimate the effects of military service on future earnings using the quasi-experiment. The research paper takes the special case of Israel, where military service is mandatory for the Jewish people and male Druze Israeli Arabs. As for other Israeli Arabs, they are not required to serve in the Israeli army, and in fact, most of them do not. By comparing earnings of Druze and non-Druze Arabs, controlling for some other influential variables, Mr. Asali finds, that there exists a largely positive and statistically significant wage premium for service in the army, ranging between 18% and 23% for different age groups. Additionally, he shows that this premium is not due to human capital improvement and proposes the potential explanation for this result to be networking or social capital, built during army years. This explanation is supported by descriptive evidence, showing that after the army Druze Arabs used to relocate from low prestige jobs to highly prestigious jobs, such as public administration, while most of non-Druze Arabs in the same age cohort, without army service, relocated to other low-pay sectors, such as transport and communications.

The audience, aware of the situation in Israel, raised the language issue as a potential explanation for service premium. As they mentioned, army experience helps military servants speak the native language more fluently. Even though the claim is reasonable, as professor Asali explained, there is no way to check it in the current setting.      

ISET would like to thank professor Asali for sharing his research with the community and giving a live example of how smart research ideas can be translated into a practice using modern econometrics techniques.