Earlier this week, Brookings scholar Richard Reeves published an enlightening analysis of the Congressional Budget Office (CBO) data on income inequality. His piece, “Restoring middle class incomes; redistribution won’t do,” described what frustrated Americans have felt for years: Since 1979, the wealthiest Americans experienced the most significant income gains. Counterintuitively, Reeves also highlighted that the lowest earners—the bottom quintile of household income—kept roughly on pace with the growth rates of the highest earners.
Federal Executive Fellow - Foreign Policy, The Brookings Institution
Commander - U.S. Navy
His analysis focuses on income stagnation and policy solutions for the Americans in the middle. While the top and bottom quintiles grew at 79 and 78 percent respectively, middle-class household income rose at a tepid 46 percent. Unlike the decades after World War II, when every income level increased at comparative rates, in recent years the middle class lagged woefully behind.
With one important exception. Over the last 18 years, active duty military pay increases significantly outpaced their civilian counterparts. A combination of economic forces and political obligations inverted the earning potential for uniformed personnel. With very little fanfare, military service became one of the last bastions of middle class social mobility.
An April 2018 demographic analysis by the Council on Foreign Relations indicated that the modern military draws heavily from middle-class families. Over 60 percent of 2016 enlistments came from neighborhoods with a median household income between $38,345 and $80,912. The quintiles below and above that band were underrepresented, with the poorest quintile providing 19 percent of the force and the richest Americans enlisting at a rate of 17 percent. The modern force comes predominantly from the middle-class households highlighted in Reeves’ article.
Historically, those middle-class enlistees expected a comparatively low salary paired with exceptional benefits. This traditionally included a tax-free housing allowance and fully compensated medical care, but more recently incorporated full tuition coverage from the GI Bill. Over the last 20 years as civilian wages plateaued, military compensation for the post-9/11 force steadily increased.
A mid-grade enlisted sailor, soldier, or airman (at an E5 paygrade) made 10 percent less than the median American in 2000 and at the time (as John McCain pointed out) was eligible for food stamps. By 2011, service members of the same rank were making 10 percent more than the median American, even without including benefits. The most recent jobs report indicated a national wage increase of 3.1 percent, slightly higher than the 2019 military pay raise of 2.6 percent. But for now, even excluding housing cost and medical insurance an “E5” is making an above-average American salary. It’s not that the Pentagon was “keeping up with the Joneses.” It’s just that in the last 20 years, the Joneses weren’t keeping up with the military.
While the military is traditionally immune to the fluctuations and volatility of their private sector counterparts, the remarkable swing over the last decade was the result of two once-in-a-century events occurring in concert. The economic recession began in 2008, around the same time as the so called “surge” in Iraq and the continuation of the war in Afghanistan. Those unrelated events created an unprecedented shift in military compensation relative to the rest of the public sector. In other words, the worst economic collapse since the Great Depression corresponded with the longest war in U.S. history.
Sources: Social Security Administration (https://www.ssa.gov/OACT/COLA/central.html); Defense Finance and Accounting Service (https://www.dfas.mil/militarymembers/payentitlements/Pay-Tables/military-pay-charts.html); FederalPay.org (https://www.federalpay.org/military/raises). This data compares historic “median net compensation” provided by the Social Security Administration with the annual salary of an “E5” with over four years of service in the U.S. military. There are no adjustments for inflation, and “military base pay” does not include the value of any “benefits,” most notably delayed compensation from pension, medical insurance, tax benefits, or housing allowances.
The temptation for future defense budgets will be to neglect military compensation increases and regress to the historical pay gap as personnel expenditures currently encapsulate one-third of the defense budget. But, the Department of Defense (DOD) must keep an eye on the horizon and proactively anticipate and act on civilian sector economics and public policy changes. The regional implementation of tuition-free college (as instituted in Tennessee), increasing momentum behind “Medicare-for-all,” and increasing civilian wages would dramatically affect the middle class, and therefore the pool of military recruits. The Pentagon got a head start over the last decade recruiting and retaining a high-caliber team despite nearly full employment. That advantage won’t last forever.
The 2018 National Defense Strategy recognized that “the security environment is also affected by rapid technological advancements and the changing character of war” and “the drive to develop new technologies is relentless.” The modern military is competing with the private sector for skilled labor and technological savvy. If properly nurtured and maintained, the inversion of the civil-military pay gap enables the recruitment and retention of high capability talent. The DOD should take advantage of these national economic trends to improve the capability as well as capacity of the force.
Conversely, scholars like Reeves and his Brookings team at the “Future of The Middle Class Initiative” could gain insight from studying the modernization of the military. As the DOD transitions a growing segment of its workforce into the knowledge-based economy, leaders and stakeholders in the civilian world may glean important lessons that can restore prosperity and mobility to the middle class. We, as a nation, would all benefit from their success.
Nobody should join or remain on active duty for financial reasons. As Reeves points out, the sluggish increase in middle-class growth is a significant problem in America. But it may create an opportunity for the DOD to build a more skilled and competitive force. Ironically, the men and women in uniform are some of the few members of the middle class capable of achieving the American dream they have sworn to defend.
The views expressed are the author’s alone and do not reflect the official policy or position of the United States Navy, U.S. Department of Defense, or the U.S. Government.
[Tension between the United States and China will make it harder for the G-20 to reach consensus...] Can these organizations still function? Can they still make progress on pressing challenges?