Ex Ante Compensation for Military Death--Posner

The public is upset by the casualties that our soldiers are suffering in the Iraq war, and it might seem that their upset would cause no puzzlement even to an economist. But there is an economic puzzle. It is this. Ours is an all-volunteer military. No one is forced to join. Everyone who does join realizes that he may find himself in a combat zone. This is an expected cost of military employment and in a competitive labor market will be reflected in the wage. That is, the wage rate in a competitive labor market will compensate a worker for any risks that the particular employment can be expected to create--a proposition that goes back to Adam Smith. If the risk materializes, the employee has no cause to complain, provided it was the risk that he understood the job involved or should have understood it involved when he signed up for it, because he was compensated in advance. Yet that is not how the public views our military casualties. That is the economic puzzle which I address. What is not puzzling is why the families and friends of a killed or injured soldier grieve. Ex ante compensation for a loss does not wipe out the loss, even if it is a purely financial loss. It just provides the inducement to bear the risk of incurring the loss. One's spouse might consent to one's working at a very dangerous job, yet still grieve when one was killed at the job. Nor is it a puzzle why, as in the recent search for the three American soldiers captured by the enemy in Iraq, immense resources are devoted to rescuing soldiers, rather than writing them off as having consented ex ante to their plight. The compensating wage for bearing risk varies, obviously, with the risk, and the risk in turn depends on efforts that are and will be made to minimize the risk, including body armor, rescue, medical treatment, and so forth. Knowing that one's fellow soldiers do not just abandon one when the cost of rescue would be disproportionate to any tactical value of the rescue reduces the wage that a volunteer army has to pay to attract soldiers of the quality it wants. But the question remains how to explain the upset that the public feels at our mounting casualties in the Iraq war. Is it just shock at seeing photographs of dead and badly injured Americans? But in fact such photographs are rarely shown. Or is it perhaps that the risk of death and injury is greater than our soldiers had reason to expect when they signed up? Were this the concern, one would expect sympathy to be withdrawn from soldiers killed or injured who signed up within the last two years, for by two years ago it was clear that a great many recruits would be fighting in Iraq before the war ended. The case of soldiers who joined the military before the September 11, 2001, terrorist attacks indicated that the United States could be expected to be involved in more military operations than previously anticipated might be thought different. But most of those soldier completed their military obligation and so be allowed to resign without penalty years ago. The situation of those who "re-upped" is no different from that of recent recruits. Could there be a paternalistic concern--that recruits are not calculating the risk of death or injury accurately and as a result are not receiving an adequately compensatory wage differential over a safe job? This is unlikely. One reason is that a great, and probably unobtainable, amount of information would be required in order to calculate that differential. The risk of death or injury in combat is an example of what statisticians describe as "uncertainty" rather than "risk," reserving the latter term for situations in which a numerical probability can be estimated. The incidence and length of wars, the probability of serving in a combat zone and for how long, and the amount and severity of the fighting in that zone are all imponderables. The resulting uncertainty argues for an alternative to building ex ante compensation into the soldier's wage when he is hired. Hence the practice of paying combat pay as a bonus to the soldier's ordinary wage. At present, soldiers serving in combat zones, mainly Iraq and Afghanistan, receive $225 a month as combat pay on top of their regular wage. The $7,000 bonus paid Marines who agree to be deployed to a combat zone for seven months is a similar response to the difficulty of fixing conventional ex ante compensation. A further complication is illuminated by the economic concept of monopsony. The term refers to a situation in which there is no competition on the buying side of the market, as distinct from no competition on the selling side (monopoly). In a monopsonized market sellers receive less than they would in a competitive market because of their lack of alternatives. Persons who join the military to obtain or exercise technical skills have civilian alternatives, so the military has to compete with civilian employers for the services of such persons. But if you want to be a combat soldier, there is only one possible employer (if you are an American) and that is the U.S. government. So the government can pay a low wage to persons desiring that employment--in fact it seems that it can pay a lower wage than it does to its military technicians (adjusting for the value of the technical training that the latter receive) even though the latter are less exposed to combat risks. I suspect that the main reason for public distress at U.S. military casualties is altruism, which is stronger in a family setting but extends to strangers as well, as in charitable giving. Most people are grateful to those who protect them, even if the protectors are well compensated. But what of those Americans who believe that our involvement in Iraq is a mistake and that our soldiers, or at least most of them, should be withdrawn? Most of the critics of the war realize that the soldiers are trying to protect us, even if the soldiers are mistaken in believing that they are doing so. If anything, critics feel sorrier for the troops than supporters of the war, because they think that the casualties represent sheer loss, so that the soldiers are deluded as well as endangered.

Comments

[Rob]

First, soldiers are young, very young. We have many laws that protect the "young" like a drinking age of twenty-one. Ironic, that the going to Iraq and killing age is only eighteen.

Second, soldiers often become soldiers because they don't have many options - GW, Posner, Becker etc. don't fight. Poor people fight. That just don't seem fair, now does it sir?

Third, soldiers do have to volunteer, but than they can't quit - coal miner's can quit. (So yes, the risks can't be measured well and no adjustments possible when they change. Unless our young soldiers are schooled on real options theory in public high school prior to signing up, I'm doubting that they are measuring those odds very accurately.)

Fourth, soldiers get paid like crap compared to the "mercenaries" or paid soldiers that are working in Iraq who actually do combat duties like body guards and ... well rumor has it some other "missions" ... but even the Brown and Root guys get paid a lot more than the soldiers.

So ... a blind man with no background in economics can see that most of these guys are getting used like rented mules ... and most people have some compassion and heart - our present administration excluded of course.

[Political umpire]

I think with respect Rob is oversimplifying things - though a majority of soldiers might be from poor backgrounds units such as the Rangers and Airborne Divisions tend to be from more middle class, educated backgrounds and they do have more realistic economic choices.

Wes I would suggest that there are two reasons why the US occupation has failed thus far to quell or even reduce the insurgency: first, because it would be politically unacceptable in terms of collateral damage for America to wipe out the insurgents, and second, because it would be politically unacceptable in terms of its own casualties to do so.

Bluntly put, in WWII Germany and Japan quashed insurgencies in their occupied territories, often at terrible cost (eg the Warsaw uprising towards the end of the war). To be sure, they never faced insurgents as sophisticated as those America has confronted in Iraq, but their mentality would have been to destroy a village in retaliation for each of their own casualties and in short order there would either have been no insurgency or no country. America could of course deploy its enormous conventional power to such ends but in this day and age that would not be acceptable. The insurgents know this, and exploit it ruthlessly.

One guy summed it up with the phrase 'America can't take the blood'. His name - Saddam Hussein.

[wow powerleveling]

an airforce recruiter told me that he tells recruits that they are not going to school they will be breaking things and killing people...if a recruit does not want to break and kill then don't join the service...
To be sure, in order to obtain a position with private firms, one usually has to have military experience, and anyone who can put Delta (or, in the UK, SAS) on his C/V can charge a higher price. There are other factors aside from basic salary as well, which namely that private firms have to pay for their own equipment and bases, and also pensions and medical care, whereas ordinary soldiers do not.

[Corey]

This is a lot of words to explain something as simple as why people feel sad and vulnerable when someone dies. I thought it was manifestly obvious and had a lot to do with the word "empathy."

Anyway, none of the people I know who went into combat had the kind of options that would qualify under any reasonable definition of "competitive labor market." Frankly I find it almost absurd to invoke Adam Smith in the context of trillions of dollars being funneled into the command economy that is the Defense Dept.

[Corey]

"The reality of the situation is, there are those who hate us to the very core or have a completely different world view that translates into political differences and military actions"

Hatfield, this clash of civilizations stuff is quite tired, like Huntington. It is irrational to hate people to the very core, and it is foolish to ascribe irrationality to one's "opponent." All of this merely becomes an excuse for not trying to at least comprehend the other "world view," and so bridging differences becomes impossible and Huntington's philosophy self-perpetuates the conflict.

[n.e.hat]

Irrationality is at the very core of being human. As for the "clash of civilizations" being cliche'd, such is the very nature of our socio-politco-economic weltgeist and weltanschaunng. Now isn't it Corey? As for Huntington, it's all a bit simplistic. A better form of analysis, is a synthesis of Kant, Hegel, Kierkegaard and Nietzsche. But, in the end, we're all dead anyway. The only question remaining is who pulls the plug; God or our enemies.

[Bernard Yomtov]

This is economic rationality gone wild. Is Posner really puzzled by why we feel sympathy for those killed or wounded in Iraq?

If so, he might ask why we feel sympathy for those harmed in car accidents. They assumed the risk of driving just as the soldiers assumed the risk of combat. Or those who die of heart attacks. Gee, maybe those super-sized fries weren't such a good idea.

We feel sympathy because death is tragic, especially in the young, over and above any sort of hyper-rational analysis. We feel sympathy because those killed lost their bet. That it was a good bet doesn't change that. In other words, we feel sympathy for a bad outcome, even if the action that led to it was sensible.

Why this is hard to understand is mysterious.

[Political umpire]

wow powerleveling has cut and pasted a bit from Sandy Scwab and a bit from myself - down to the grammatical error in my quotation. The two quotes don't even run together in any logical fashion. But imitation is the sincerest form of flattery, though I don't know what Mr Schwab thinks of it ...

[Argenlibre]

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[Rob]

Political Umpire: If the soldiers were educated, they wouldn't be soldiers ... they would be officers ... and officers can quit whenever they want ... they just give up their commission. So ... if the risks get too high for officers - which never happens because they are protected by the soldiers - they quit. Soldiers can't quit ... therefore, soldiers can't negotiate higher wages nor better working conditions - i.e. armor for their vehicles. Posner's and Becker's view of how wages are set breaks down. Soldiers are underpaid because they are young, transient, and politically weak.

What does happen and has happened is that the standards have gone down ... way down. You no longer need a high school diploma for instance. The draft age has risen. More lenient towards police records and convictions ... etc.

It may make you feel good to believe that the combat soldiers - Rangers and Airborne units - are from middle class backgrounds, but that's simply not the truth. Increasingly, they are coming from outside the United States:

"Making up about 7 percent of America's active fighting force, immigrants with green cards -
Mexicans the largest group among them - are risking their lives not just for advancement within the Army, but for a leg up on the road to US citizenship. As America celebrated its 229th year of independence this weekend, immigrants offered their own breed of patriotic sacrifice, and their numbers are rising even as the Army has struggled to meet recruiting goals."

[Political Umpire]

Rob, I accept that in general risks are lower for officers, but that is less so in Iraq where even the Iraqi Parliament building in the Green Zone has been subjected to suicide attacks. And if by 'officers' you include more junior brass such as captains/lieutenants then they face a high risk similar to that of the rank and file, since they also go on active combat missions.

"It may make you feel good to believe that the combat soldiers - Rangers and Airborne units - are from middle class backgrounds, but that's simply not the truth." Do you have any statistics on this? I have just re-read Black Hawk Down, and the Rangers involved in that mission were generally what one would call middle class, and many went on to get college educations. But I would be interested to see any authoritative stats on that.

"Increasingly, they are coming from outside the United States:

"Making up about 7 percent of America's active fighting force ..."

Interesting, the offer of citizenship in return for military service is an old one, from at least Roman times to the French foreign legion. But 7% is not particularly high, is it?

[N.E.Hatfield]

Rob, 7%-big deal!. If I remember correctly, that during the Civil War, approx. 20% of the Union Army was comprised of foreign nationals. The percentage was even higher during the Indian Wars. Why the percipitious drop if immigrants are so willing to join up? As for the intelligence of American soldiers, thats always been one of its strong suits. Most American soldiers are the equivalent (IQ scores) of any one in the officer corps all the way up to the Commander in Chief and in some cases may be even smarter. Never worry about the American military losing its officers and ceasing to function because of the "head" being removed (like most other militaries), we'll just elect knew ones.

[Rob]

7% is a big deal ... a huge deal actually. Here is why:

Posner writes: "But there is an economic puzzle. It is this. Ours is an all-volunteer military. No one is forced to join. Everyone who does join realizes that he may find himself in a combat zone. This is an expected cost of military employment and in a competitive labor market will be reflected in the wage. That is, the wage rate in a competitive labor market will compensate a worker for any risks that the particular employment can be expected to create--a proposition that goes back to Adam Smith."

"Seven Percent" is your answer ... it ain't a "competitive labor market" when you can higher foreigners and give them green cards ... this advantage that the Army has over other institutions - no H1B visas in the Army - forces the wages down and explains at least some of Posner's "puzzle."

(Probably higher than 7% too ... somebody should check the figure.)

[Mat]

I think you need to refer to the management and the shareholders, presumably the coal mine is run by its managers with greater efficiency than the military operation in Iraq. Everything boils down to ex ante expectations and how close the forecast was to reality when it rears its often ugly head.

Another thought I'm sure has been mentioned: the recruitment process is fraught with informational asymmetries to the disadvantage of the potential entrant; and if the all volunteer military is subject to a perfect market, why don't wages fluctuate with expectations of perceived risk--i.e. rise and drop in war and peacetime, respectively?

[Mat]

Apologies, referring to:
"So why is every soldier's death outrageous, but a coal miner's is merely tragic?"
from #2

[N.E.Hatfield]

Rob, Once again there seems to be a fundamental disconnect in terms of the military. Such that, it lies outside of of the rational or irrational methodolgy (depending on its application) of the of the Classical or Neoclassical Economic Schools of Malthus, Smith, Ricardo, and others. It's kind of like trying to compare apples and oranges and not being able to understand why they're different and the comparison doesn't work.

[Jeff Suloff]

There are two points I wish to add:
1. By definition, a volunteer worker does not get paid or receive compensation for services rendered. US Military personnel are clearly not volunteers, but mercenaries. They are paid substantially more than what is paid in countries where a draft exists, therefore their decision to join the military is also linked to pecuniary motives.
2. Being mercenaries does not preclude them being patriotic, in fact they clearly are more patriotic than the typical American. Otherwise we would be hearing about defections once the casualties started increasing. "Serving their country" is therefore one of the "benefits" they are receiving that is not compensated for monetarily, but is compensated with the support they receive from the rest of us.

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