Monopsony and Labor Supply in the Army and Navy

Abstract

Because it is differentiated from other employers, the U.S. military enjoys some monopsony power. After reviewing existing estimates of the elasticity of labor supplied to the military, we obtain new estimates for the Army and Navy covering the period from 1998-2007. We employ a control function approach to account for the potential endogeneity of enlistment incentives. Our elasticity estimates of 2.4 for the Army and .4 for the Navy suggest that the services have substantial wage-setting ability. However, the Army faces higher supply elasticity since the invasion of Iraq and higher elasticity in states with weak support for obligatory military service.