Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, October 04, 2005

Maybe a Recession Would Help

An accepted principle in economics is that if you want to increase the quantity supplied of something, you must meet or exceed the opportunity costs of using the inputs to produce that something instead of something else. E.g., if you want to attract more workers to a particular occupation, you must attract them from other occupations, and the clearest way to do so is by offering a higher wage.

Does this apply to recruiting military personnel for the U.S. military? Yes, for the most part. Of course the compensating variations are important in this line of work:

• The daily reports of American deaths in Iraq and the uncertain nature of the struggle against the insurgency have put a damper on young people's enthusiasm for joining the military, according to opinion surveys.
• The Army has a smaller-then-usual [sic] reservoir of enlistees as it begins the new recruiting year on Saturday. This pool comes from what the Army calls its delayed-entry program in which recruits commit to join the Army on condition that they ship to boot camp some months later.

Normally that pool is large enough at the start of the recruiting year to fill one-quarter of the Army's full-year need. But it has dwindled so low that the Army is starting its new recruiting year with perhaps only 5 percent "in the bank."

[Update: also see this]
To attract more workers, the Army could raise the wage rate. But they have enormous monopsony power, meaning that raising the wage rate to attract a few more volunteers would entail a very large increase in the wage bill for all the soldiers hired (assuming the Army didn't practice price discrimination in its hiring [but see below]). The supply curve of soldiers to the Army is upward-sloping; hence, so is the marginal factor cost curve, but it has a steeper slope and lies above the supply curve. And so, rather than raise salaries, the Army is trying to shift the supply curve to the right.
The factors working against the Army, [Army spokesman, Lt. Col. Bryan] Hilferty said, are a strong national economy that offers young people other choices, and "continued negative news from the Middle East." To offset that the Army has vastly increased the number of recruiters on the street, offered bigger signup bonuses and boosted advertising.
Offering higher signup bonuses is one way of using two-part pricing to practice price discrimination, actually.

[Update: allowing new recruits to designate that a portion of their time could be spent in the Peace Corps was also a strategy to increase the supply.

In August, the military began promoting a recruitment program that allows
soldiers, after a period of active and reserve duty, to fulfill their commitment
by serving in the Peace Corps. By 2007, about 4,300 recruits will be eligible
for this option.

See this criticism of the strategy.]

Another way to get more recruits might be to reduce the value of their alternatives. Throw the economy into a recession, cut down on job opportunities, raise university tuition for non-ROTC students, etc. It would be Machiavellian, and I am not recommending it, but it would work.
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