Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2014:10: Opportunity Cost and the Incidence of a Draft Lottery

Paul Bingley (), Petter Lundborg () and Stéphanie Vincent Lyk-Jensen ()
Additional contact information
Paul Bingley: The Danish National Centre for Social Research – SFI, Postal: Herluf Trolles Gade 11 DK- 1052 København K, Denmark
Petter Lundborg: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Stéphanie Vincent Lyk-Jensen: The Danish National Centre for Social Research – SFI, Postal: Herluf Trolles Gade 11 DK- 1052 København K, Denmark

Abstract: Military conscription implicitly taxes draftees. Those who would have volunteered at the market wage may be forced to serve for lower wages, and those with higher opportunity costs may be forced to serve regardless, yet little is known about the distribution of this burden. We exploit the Danish draft lottery to estimate the causal effect of military service on labor earnings of young men across the cognitive ability distribution. We find that high ability men who are induced to serve face a 7 percent earnings penalty, whereas low ability men face none. Educational career disruption is an important channel.

Keywords: conscription; military service; earnings; draft lottery

JEL-codes: J24; J31; J45

37 pages, March 21, 2014

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