Is Military Disability Compensation Adequate to Offset Civilian Earnings Losses from Service-Connected Disabilities?

Abstract : Casualties in Iraq and Afghanistan have heightened concern about whether disability compensation and programs provide adequate support for military veterans. The Departments of Defense and Veterans Affairs pay about $35 billion in disability compensation to about 3.2 million veterans each year. Their disabilities range from battlefield injuries to health conditions like diabetes and asthma. This research looks at the adequacy of disability compensation to offset the reduction in civilian earnings opportunities that are associated with service-connected disabilities (SCDs). Compensation is based on a schedule of ratings that nominally reflects the average loss in civilian earnings related to each disability. Until recent years, research has not directly compared disability payments with the actual civilian earnings losses of veterans. Our analysis focuses on recent cohorts of veterans who left active military service between fiscal year (FY)1993 and FY2004. We track their civilian earnings and labor force participation (LFP) for up to 12 years, from 1994 through 2005. We follow civilian labor-market outcomes for veterans in these cohorts and compare the labor-market success of veterans with and without SCDs.