In this paper, the random assignment of the risk of induction generated by the
draft lottery is used to estimate the effect of military service on civilian
wages, earnings and weeks worked- Data from the National Longitudinal Survey of
Young Men in 1981 offer no conclusive evidence of an effect on earnings or weeks
worked- However, marginally significant negative wage effects are found for
white veterans, while positive wage effects are found for black veterans-
Conventional ordinary least squares estimates which do not exploit the
randomization of the draft lottery fail to identify these effects, suggesting the
presence of selection bias in conventional estimates, Finally, an attempt is
made to gauge whether instrumental variables estimates which do not exploit the
lottery generate similar inferences regarding the effects of military service-
Two sets of conventionally available instruments result in estimates which differ
greatly from those constructed using lottery based instruments- However, both
the least variance ratio and the generalized method of moments tests of over-
identifying restrictions provide some help in isolating the most misleading
conventional specifications.

Estimates of the effect of veteran status on civilian earnings may be biased
by the fact that certain types of men are more likely to serve in the armed
forces. In this paper, an estimation strategy is employed that enables
measurement of the effects of veteran status while controlling for differences in
other personal characteristics related to earnings. The randomly assigned risk
of induction generated by the Vietnam era draft lottery is used to construct
instrumental variables that are correlated with earnings solely by virtue of
their correlation with veteran status. Instrumental variables estimates
tabulated from Social Security Administration records indicate that in the early
1980's the earnings of white veterans were approximately 15 percent less than
nonveteran earnings. In contrast, there is no evidence that nonwhite veterans
suffered any lasting reduction in earnings. In an attempt to explain the loss of
earnings to white veterans, experience-earnings profiles are estimated jointly
with time-varying veteran status coefficients. The estimates suggest that the
effect of Vietnam era military service on white veterans is equivalent to a loss
of two years of civilian labor market experience.