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.