The Pentagon could save considerable money over time by reducing military pay raises, but the downside is that enlisting and staying in the service could become a lot less attractive, according to the nonpartisan Congressional Budget Office.
CBO’s March analysis of ways to reduce defense costs includes a discussion of pay caps, something the Defense Department is already planning to use. The 2014 Obama administration budget to be unveiled on April 8 will propose a 1 percent military pay increase for Jan. 1, 2014, less than the 1.7 percent increase due service members under a federal pay formula that calls for military raises to match average private-sector wage increases.
CBO, discussing what it calls “more modest” raises that would relieve some of the pressure to cut force structure, weapons and operating costs, suggests that linking annual increases to inflation rather than private-sector wage growth would save $45 billion through 2021 but would result in pay that is 13 percent less than it would be by following the current formula.
Annual private-sector increases are projected to average 1.8 percentage points more than inflation, CBO says in the report.
“Limiting pay increases might make it more difficult to recruit and retain a qualify force because it would result in an erosion of wages relative to projections for the nation as a whole,” CBO says. “However, the fact that military compensation has risen dramatically over the past decade — to the extent that, on average, enlisted military personnel now earn more than 90 percent of civilians with similar education and experience — could lessen the effects of such a policy.
Any recruiting and retention problems could be mitigated if DoD “could adopt creative combinations” of lower pay raises and bonuses and incentive pays targeted at service members with critically needed skills, the report says.
A weak economy also lessens the potential impact on recruiting and retention, the report says. “With the looming drawdown and present sluggish job market, holding military pay to the rate of inflation for a few years might have little effect on either recruiting or retention,” says the report, titled “Approaches for Scaling Back on the Defense Department’s Budget Plans.”