ECONOMIC AND BUDGET ISSUE BRIEF

Assessing Pay and Benefits for Military Personnel

How Much Do Service Members Earn?

All military personnel on active duty receive regular military compensation (RMC). About 60 percent of RMC 

consists of basic pay, which depends on a service member’s rank and years of service. The rest of RMC consists 

of cash allowances for food and housing and the tax 

advantage that arises because those allowances are not 

subject to federal income taxes. In calendar year 2006, 

regular military compensation ranged from $29,700 for a 

single enlisted member in the lowest pay grade (E-1) to 

$85,900 for a single person in the highest enlisted grade 

(E-9).1 Personnel with dependents receive higher compensation: For an enlisted member with a spouse and two 

children, RMC ranged from $32,800 in grade E-1 to 

$89,600 in grade E-9 last year (see Table 1). 

Besides regular military compensation, the services 

offer more than 60 kinds of “special pays” (additions to 

monthly cash income) for personnel in certain situations, 

as well as bonuses for enlisting or reenlisting. Some special pays or bonuses are targeted toward personnel who 

are in specific occupations (such as aviator, medical specialist, submarine crewman, or linguist) or who perform 

hazardous duties (such as explosives demolition or crashsite investigation). In the Army, reenlistment bonuses 

averaged about $15,000 per person in 2006, and a small 

number of senior sergeants in the special forces (who 

were eligible to retire) received bonuses as high as 

$150,000.

Other types of special pays are linked to deployment or 

combat. In 2006, service members with dependents who 

served away from their families for at least 30 days in a 

row received a family-separation allowance of $250 per 

month. Personnel who served in Iraq or Afghanistan 

could earn an additional $325 a month in imminentdanger pay and hardship-duty pay. Personnel whose 

tours in the Iraq theater were involuntarily extended 

beyond 12 months received an extra $200 per month in 

hardship-duty pay and $800 per month in assignmentincentive pay last year. (Some personnel who voluntarily 

extended their tours in Iraq or Afghanistan beyond 

CBO A series of issue summaries from

the Congressional Budget Office

AUGUST 15, 2007

Summary

Are members of the U.S. military paid enough? The 

answer depends in part on the measure used to assess 

military compensation. In terms of basic cash pay, 

enlisted personnel fall in the middle of the earnings 

distribution for civilian workers of similar ages and 

education levels. With the military’s cash allowances 

for food and housing included (as well as the tax 

advantage that service members receive because those 

allowances are tax-exempt), enlisted personnel earn 

more than at least 75 percent of comparable civilians, 

the Congressional Budget Office (CBO) estimates. 

Members of the military also receive more-extensive 

benefits than most civilian workers do. 

Those types of comparisons can give a sense of whether 

service members are being offered a competitive compensation package. But such comparisons are complicated by the fact that job conditions in the military are 

very different—and sometimes much more hazardous—than those in the civilian sector.

Pay comparisons are more meaningful when viewed in 

the context of the military’s ability to recruit and retain 

an experienced, well-qualified force. Overall, the 

Department of Defense (DoD) has met its goals for 

recruiting and retaining active-duty personnel in 

recent years, although at times the Army has faced significant challenges in achieving its targets, particularly 

for certain high-demand occupations.

1. This issue brief focuses specifically on enlisted personnel, who 

make up 83 percent of the U.S. military.
2 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Table 1.

Estimated Average Compensation for Enlisted Personnel in 2006, by 

Pay Grade and Family Status

(Dollars)

Source: Congressional Budget Office based on data from the Department of Defense.

Notes: Cash pay is regular military compensation (basic pay, allowances for housing and subsistence, and the federal tax advantage that 

arises because those allowances are not taxed). Noncash and deferred cash pay include the accrued value of veterans’ benefits and 

retirement benefits (pay and health care). Because veterans’ benefits are not funded on an accrual basis, these estimates cannot be 

compared with amounts in federal budget documents for fiscal year 2006.

Any noncash benefits that these notional enlisted members would not use are excluded from the calculations. For example, if an 

enlisted member’s compensation package includes a family-housing allowance, CBO does not also include a portion of the cost to 

build or maintain barracks (because most members would not receive both types of housing benefits at the same time). These calculations also exclude the cost of providing fitness centers, clubs, or other recreational activities. 

a. The children are assumed to be enrolled in subsidized military child care or school-aged care.

12 months could also receive as much as $1,000 per 

month in assignment-incentive pay, depending on their 

skills and the length of their extension.) In addition, all 

income that enlisted personnel earn while serving in a 

combat zone—including special pays and bonuses—is 

exempt from federal income taxes.

Service members may receive only a few of the many special pays and bonuses over the course of a career. Yet those 

additions to compensation can significantly boost cash 

earnings. For instance, in 2006, the average enlisted 

soldier in the Army earned $41,700 in basic pay and 

housing and food allowances, but about $44,900 with 

special pays and bonuses included. 

How Does Military Pay Compare with 

Civilian Pay?

Results of comparisons differ depending on how military 

compensation is defined and on what segment of the 

civilian population is used for the comparison. Although 

most enlisted personnel join the military soon after high 

school, they generally receive some college-level education while on active duty. (The share of enlisted personnel with at least one year of college education grew from 

32 percent to 72 percent between 1985 and 2005, CBO 

estimates.) DoD has argued that military pay must 

compare favorably with the wages of college-educated 

civilians—rather than high school graduates—to keep 

E-1 E-2 E-3 E-4 E-5 E-6 E-7 E-8 E-9

18 19 20 22 25 31 37 40 44

<2 <2 <2 3 6 12 18 21 25

Cash 29,700 32,000 32,900 37,200 45,000 54,000 63,400 72,400 85,900

25,300 26,900 27,600 31,200 35,600 41,800 48,500 54,300 64,900 ______ ______ ______ ______ ______ ______ ______ ______ ______

Total 54,900 58,900 60,500 68,400 80,600 95,700 111,900 126,600 150,700

32,800 34,700 36,300 40,400 47,200 56,800 65,200 72,800 89,600

37,300 38,900 39,700 49,200 53,700 59,800 64,800 70,200 81,100 ______ ______ ______ ______ ______ ______ ______ ______ ______

Total 70,100 73,600 76,000 89,700 100,900 116,600 130,000 143,000 170,700

Pay Grade

Compensation for Married Enlisted

Member (High school graduate with

Typical Age

Average Years of Experience

Compensation for Single Enlisted

Member (High school graduate)

Noncash and deferred cash

Cash

Noncash and deferred cash

working spouse, two children)a
ECONOMIC AND BUDGET ISSUE BRIEF

ASSESSING PAY AND BENEFITS FOR MILITARY PERSONNEL 3

Figure 1.

Annual Earnings of Enlisted Personnel and of Civilian Workers with Some 

College Education, 2006

(Thousands of dollars)

Source: Congressional Budget Office based on data from the Department of Defense, the Department of Labor, and the Office of Personnel 

Management. 

Notes: RMC = regular military compensation (basic pay, allowances for housing and subsistence, and the federal tax advantage that occurs 

because those allowances are not taxed).

Civilian data include reported 2005 earnings for male full-time nonagricultural workers, by age, inflated to 2006 using the employment 

cost index. 

experienced personnel in the force. Specifically, DoD’s 

goal has been to make RMC comparable with the 70th 

percentile of earnings for civilians who have some college 

education.

CBO estimates that in calendar year 2006, average basic 

pay for enlisted personnel closely matched the 50th 

percentile of estimated earnings for civilians with some 

college education (see Figure 1). With cash allowances 

and associated tax advantages included, RMC for the 

average enlisted member exceeded the 75th percentile 

of civilian earnings. Thus, CBO’s analysis suggests that 

DoD has achieved its comparability goal.

Comparisons of military and civilian pay have some 

important limitations, however. First, working conditions 

can differ markedly between military and civilian jobs. 

For example, military personnel are generally expected to 

change locations every few years—in addition to deploying for specific operations—whereas most civilians can 

choose to remain in the same area throughout their 

career. Military personnel may work longer hours or in 

more hazardous conditions than civilians do, even if their 

type of occupation is the same. Job security, personal 

autonomy, group solidarity, and job satisfaction may differ as well. In general, one would expect compensation to 

be higher for jobs that have negative characteristics. 

Second, pay comparisons may ignore the value of training 

and education. DoD generally tries to recruit capable 

young people with high school diplomas or some college 

education and then invests a significant amount of 

money in training them for military life and for their 

particular occupational specialty. Civilian employers, by 

contrast, generally hire people who have already been 

trained (although many workers receive valuable on-thejob training, and some receive tuition assistance). In addition, civilian employers are more likely to hire people at 

various levels of experience. Adding in the value of training and education would raise military compensation 

even higher relative to civilian compensation.

Third, differing career patterns in the military and civilian sectors complicate pay comparisons. Because the military “promotes from within,” pay may need to be higher 

for new recruits than for civilians of similar ages and 

0

10

20

30

40

50

60

70

80

0 5 10 15 20 25

Years of Experience

25th Percentile of Civilian Earnings

50th Percentile of Civilian Earnings

Average Basic Pay for Enlisted Members

75th Percentile of Civilian Earnings

Average RMC for Enlisted Members
4 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

education levels, as DoD tries to compete for the best 

pool of applicants from which to select the best career 

personnel. Also, data on average civilian compensation 

(such as those shown in Figure 1) include the pay of people who are successful in their civilian careers as well as 

the pay of people who are not. But in the military, the 

“up-or-out” promotion system means that the least successful personnel have generally left military service 

before reaching the more senior levels.

Is There a “Gap” Between Military and 

Civilian Pay Raises? 

Each year, the President requests and the Congress authorizes a percentage raise in basic pay for service members. 

In an effort to boost military cash compensation, the 

across-the-board pay raise was set 0.5 percentage points 

higher than the increase in civilian wages—as measured 

by the employment cost index (ECI) for private-sector 

workers—from fiscal year 2000 through 2006.2

 Housing 

allowances and other elements of cash compensation were 

also increased. As a result, annual growth in regular military compensation for the active-duty enlisted force as a 

whole was more than 2.2 percentage points higher than 

the ECI, on average, between 2000 and 2006, CBO 

estimates. 

The cumulative difference between each year’s basic-pay 

raise and the percentage increase in the ECI is commonly 

referred to as the military “pay gap.” That measure has 

been the focus of many policy discussions about the adequacy of military compensation, although the measure 

itself is controversial. 

Some analysts argue that “equality” between military and 

civilian pay was achieved in 1982, after two years of relatively large raises in military basic pay. As a result, paygap calculations generally begin with that year. During 

the rest of the 1980s, increases in basic pay lagged behind 

increases in the ECI, and the cumulative pay gap widened. More recently, the greater-than-ECI increases in 

basic pay have narrowed that gap, bringing basic pay

Figure 2.

Differences Between Military and 

Private-Sector Pay Raises Since 1982

(Percent)

Source: Congressional Budget Office based on data from the 

Department of Defense and the Department of Labor.

Notes: RMC = regular military compensation (basic pay, allowances 

for housing and subsistence, and the federal tax advantage 

that occurs because those allowances are not taxed); 

ECI = employment cost index.

These comparisons exclude the military’s special pays, 

bonuses, and noncash benefits.

within 4.4 percent of parity with the ECI by 2006 (see 

Figure 2). 

As a basis for evaluating compensation, however, the gap 

between increases in military and civilian pay has some 

significant drawbacks. First, the ECI is based on a survey 

that covers a broad sample of civilian workers. On average, those workers are older than military personnel 

and more likely to have a college degree. That matters 

because, in recent decades, the pay of college-educated 

workers has grown faster than that of high school graduates in the civilian sector, and the pay of older civilian 

workers has generally grown faster than that of younger 

workers. The military primarily recruits young high 

school graduates, so pay raises that were smaller than the 

increase in the ECI would not necessarily hamper DoD’s 

efforts to recruit new personnel. 

Second, the pay gap measures changes in military and 

civilian pay over different periods because it mirrors the 

procedures for determining annual military pay raises. 

For example, in calculating the raise recommended in the 

2. In several of those years, additional targeted raises were given to 

people in particular pay grades. The version of the National 

Defense Authorization Act for Fiscal Year 2008 that the House of 

Representatives passed in May (H.R. 1585) would again make the 

annual across-the-board pay raise 0.5 percentage points higher 

than the ECI for 2008 through 2012.

1982 1986 1990 1994 1998 2002 2006

-20

-15

-10

-5

0

5

10

Cumulative Difference Between

Changes in RMC and the Civilian ECI

Cumulative Difference Between Changes in

Military Basic Pay and the Civilian ECI
ECONOMIC AND BUDGET ISSUE BRIEF

ASSESSING PAY AND BENEFITS FOR MILITARY PERSONNEL 5

President’s budget for 2007, DoD used the change in the 

ECI from September 2004 to September 2005. The President’s 2007 budget was submitted to the Congress in 

February 2006. Thus, policy decisions about the 2007 

basic-pay raise were not informed by changes in civilian 

pay during 2006 (at least to the extent that those decisions were based on the President’s budget request).

Finally, the pay-gap calculation focuses on one part of 

military compensation—basic pay—and ignores changes 

in other parts. Substituting increases in a broader measure 

of cash compensation, such as RMC, alters the difference 

between military and civilian pay. In 2000, lawmakers 

authorized a restructuring of military housing allowances 

to eliminate the out-of-pocket expenses typically paid by 

service members (which had averaged about 20 percent 

of housing costs). As a result, housing allowances have 

grown, as have the tax advantages that come from their 

not being taxed. With housing and food allowances and 

those tax advantages added to basic pay, increases in regular military compensation outpaced increases in the ECI 

beginning in 2000, and the pay gap became a pay surplus 

after 2002 (see Figure 2).

How Do Benefits Compare?

Cash earnings (regular military compensation, special 

pays, and bonuses) make up only about half of service 

members’ total compensation. The rest is divided almost 

equally between noncash compensation that service 

members and their families can use immediately (such as 

medical care, subsidized groceries, and child care) and the 

accrued cost of deferred benefits. Military personnel who 

leave the service in good standing are eligible for a variety 

of veterans’ benefits, which can include Montgomery GI 

Bill education programs, disability compensation, home 

loans, and health care provided by the Department of 

Veterans Affairs (VA). Service members who retire after at 

least 20 years on active duty receive an immediate lifetime 

annuity as well as health care for themselves and their 

eligible dependents.

Researchers estimate that military personnel receive a 

much larger share of their total compensation in the form 

of noncash and deferred benefits (45 percent to 60 percent) than government employees or people who work 

for large private companies do (typically about onethird). Both the military and many large private employers provide retirement benefits, health insurance, life 

insurance, and paid time off. But service members also 

have access to benefits that are not routinely offered in 

the private sector—such as free or low-cost health care, 

on-base housing, schools and child care for their children, 

and discount shopping at commissaries and exchanges. 

With the largest of those benefits included (health care 

for service members and their families, subsidized groceries and child care, the accrued cost of retirement pay, and 

the estimated accrued cost of retiree health care and veterans’ benefits), total annual compensation for a single 

enlisted member in calendar year 2006 ranged from 

$54,900 in grade E-1 to $150,700 in grade E-9 (see 

Table 1). For a married enlisted member with two 

children, total compensation ranged from $70,100 to 

$170,700 per year.

How Much Does the Government 

Spend on Military Compensation?

Total military compensation is difficult to measure 

because it includes many components spread among different agencies and appropriations. Most—though not 

all—military compensation is funded through the services’ military personnel appropriation accounts. Those 

accounts totaled $123 billion in fiscal year 2005, or about 

$90,000 per active-duty service member (including officers).3 Various studies from this decade, which included 

additional personnel costs, have estimated total annual 

compensation per active-duty member at $90,000 to 

$138,000 in 2005 dollars. Given an active-duty force of 

almost 1.4 million personnel in 2005, those estimates 

suggest that the total annual cost of military compensation was as much as $193 billion. 

Among the additional costs of personnel are about 

$13 billion a year for current health care for active-duty 

service members and their families and roughly $4 billion 

in accrued liabilities for the projected medical costs of 

personnel who will have served until retirement but not 

yet reached the eligibility age for Medicare. Veterans’ 

health care would cost another $10 billion a year if it was 

3. Those numbers include the federal government’s annual contributions to the Military Retirement Fund, which accrues the future 

costs of retirement pay for current service members, and to the 

Medicare-Eligible Retiree Health Care Fund, which accrues the 

future costs of supplementing health care coverage for military 

retirees and their families when they become eligible for Medicare.
6 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Figure 3.

Pay Increases and Personnel Levels for Selected Army Enlisted Occupations 

With Shortages

Source: Congressional Budget Office based on data from the Department of Defense (adjusted for changes in wages for civilian occupations 

using data from the Department of Labor). 

Note: Data are for December of each year. Cash earnings include all special pays, bonuses, and allowances but exclude tax advantages and 

noncash benefits.

funded on an accrual basis, and other veterans’ benefits 

would cost $12 billion on an accrual basis.4

Since the late 1990s, lawmakers have substantially 

increased benefits for military retirees. Recent policy 

initiatives include enhancing the military retirement system and expanding health care coverage for retirees and 

their families who are eligible for Medicare. The accruing 

cost of those two initiatives equals about $10.8 billion in 

fiscal year 2007, CBO estimates. In addition, surviving 

spouses who receive some of their late spouse’s military 

retirement pay will no longer have that pay reduced when 

they become eligible for Social Security, and some disabled retirees will be allowed to receive both full military 

retirement pay and tax-free VA disability compensation. 

Those latter two new benefits have added $2.6 billion to 

the military personnel budget in 2007, CBO estimates.

1999 2000 2001 2002 2003 2004 2005

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

Cash Earnings (Left scale) Positions Filled (Right scale)

1999 2000 2001 2002 2003 2004 2005

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

Special-Forces Medical Sergeants Special-Forces Assistant Operations and

Intelligence Sergeants

1999 2000 2001 2002 2003 2004 2005

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

Explosive Ordnance Disposal Specialists

1999 2000 2001 2002 2003 2004 2005

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

Human-Intelligence Collectors

Index (December 1999 = 100)

Index (December 1999 = 100)

Percent

Percent

Index (December 1999 = 100) Percent

Index (December 1999 = 100) Percent

4. Accrual estimates of veterans’ benefits are based on data from 

Government Accountability Office, Military Personnel: DoD Needs 

to Improve the Transparency and Reassess the Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military Compensation System, GAO-05-798 (July 2005). None of the estimates in 

this issue brief include the tax advantages that arise because veterans’ benefits are not taxable.
ECONOMIC AND BUDGET ISSUE BRIEF

ASSESSING PAY AND BENEFITS FOR MILITARY PERSONNEL 7

Figure 4.

Pay Increases and Personnel Levels for Selected Army Enlisted Occupations

Without Shortages

Source: Congressional Budget Office based on data from the Department of Defense (adjusted for changes in wages for civilian occupations 

using data from the Department of Labor). 

Note: Data are for December of each year. Cash earnings include all special pays, bonuses, and allowances but exclude tax advantages and 

noncash benefits.

In all, the four expanded retirement benefits described 

above have increased DoD’s military personnel spending 

by about 12 percent in 2007. Growth in those benefits 

is projected to account for 41 percent of the growth in 

military personnel spending between 2007 and 2024.5

However, those policy changes will not benefit most of 

the personnel serving in the military today. Typically, 

only 15 percent of enlisted personnel and about half of 

officers serve long enough to qualify for military retirement benefits. 

Is Military Compensation High 

Enough to Attract and Retain

Personnel?

Some analysts have argued that recruiting and retention 

are the best measures of the adequacy of military pay, 

especially in wartime. Is compensation too low to induce 

people to join or remain in the military, particularly those 

who expect to serve in Iraq or Afghanistan? 

Overall, DoD has met its goals for recruiting and retaining active-duty personnel in recent years. One reason may 

be that military compensation, both cash and noncash, 

compares favorably with civilian options. Both the Army 

and the Marine Corps—which have supplied the bulk of 

U.S. forces in Iraq and Afghanistan—have added bonuses 

and raised special pays for some occupational specialties 

in recent years. For example, the Army has quadrupled its 

annual budget for selective reenlistment bonuses since 

2002. In most of those years, it has faced significant challenges with recruiting and retention, although it met its 

goals in 2006. The Marine Corps met its recruiting and 

retention goals each year from 2000 to 2006 (despite 

spending less on enlistment and reenlistment bonuses in 

2005 than before the current operation in Iraq began). 

On average, military compensation exceeds the 75th percentile of civilian compensation, CBO estimates. But the 

military has hundreds of occupations, each of which 

could be seen as its own small labor market. Are recent 

increases in compensation able to match supply with 

demand for particular skills or occupations? 

To address that question, CBO examined six jobs in the 

Army’s enlisted force that have had persistent shortages 

1999 2000 2001 2002 2003 2004 2005

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

Cash Earnings (Left scale) Positions Filled (Right scale)

1999 2000 2001 2002 2003 2004 2005

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

Patient Administration Specialists Topographic Surveyors

Index (December 1999 = 100) Percent Index (December 1999 = 100) Percent

5. See Congressional Budget Office, Long-Term Implications of Current Defense Plans: Summary Update for Fiscal Year 2007 (October 

2006), p. 8.
8 CONGRESSIONAL BUDGET OFFICE

ECONOMIC AND BUDGET ISSUE BRIEF

Inside Mail

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

WASHINGTON, DC 20515

or surpluses of personnel and assessed the changes in cash 

earnings for those jobs (including special pays, bonuses, 

and allowances). Of those occupations, four have experienced persistent personnel shortages: special-forces 

medical sergeants, special-forces assistant operations and 

intelligence sergeants, explosive ordnance disposal specialists, and human-intelligence collectors. (CBO looked 

at those jobs because, although they are relatively small 

specialties in the Army, they represent the types of skills 

used in recent operations.) Total cash earnings for those 

four specialties have risen since 1999, whether adjusted 

for inflation or for wage growth in comparable civilian 

occupations. Nevertheless, the percentage of authorized 

positions that have been filled has remained well below 

100 percent—in some cases, falling to as low as 44 percent or 65 percent (see Figure 3 on page 6). Military personnel in two other occupations, patient administration 

specialists and topographic surveyors, have also seen their 

pay rise relative to that of their civilian counterparts, 

despite the fact that those occupations have persistently 

been at least 100 percent filled (see Figure 4 on page 7). 

One conclusion from those data is that policies that seek 

to remedy a perceived “pay gap” by making overall military pay comparable with civilian pay play a limited role 

in resolving personnel shortages and surpluses in particular Army occupations. Although regular military compensation for the active-duty enlisted force as a whole 

grew by 24 percent (over and above inflation) between 

2000 and 2007—and although average retention has 

generally been good—labor shortages or surpluses have 

continued for certain specialties. Comparing levels of, or 

annual changes in, military and civilian pay can be a reasonable rule of thumb for assessing the overall adequacy 

of military compensation. But the most important test of 

a compensation system is whether it enables DoD to 

recruit and retain the personnel it needs. 

This brief, prepared by Carla Tighe Murray and 

Christian Howlett, is based on the recent Congressional 

Budget Office report Evaluating Military Compensation

(June 2007). Related CBO publications include 

Recruiting, Retention, and Future Levels of Military 

Personnel (October 2006), Educational Attainment and 

Compensation of Enlisted Personnel (February 2004), 

Military Compensation: Balancing Cash and Noncash 

Benefits (January 16, 2004), and What Does the Military 

“Pay Gap” Mean? (June 1999), all of which are available 

at CBO’s Web site: www.cbo.gov.

Peter R. Orszag

Director