Ex Ante Compensation for Military Death

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.