Post-Traumatic Stress Disorder and the Earnings of Military Reservists

By David S. Loughran; Paul Heaton | Go to book overview

CHAPTER TWO
Estimating the Relationship Between PTSD and Earnings

Consider the following econometric model of annual labor market earnings (civilian earnings plus military earnings) of reservist i in period t, Yit:

where PTSDit indicates whether reservist i is symptomatic of PTSD at the conclusion of a deployment prior to time t, and Xit represents a set of covariates. We hypothesize that the error term in this specification is composed of an individual-level component, μi, and an idiosyncratic element, εi;

measures the estimated effect of PTSD symptoms on labor market earnings from both civilian and military sources. As would be expected, civilian labor market earnings constitute a substantially larger share of total earnings in the years prior to and following deployment.1

Past research on PTSD and labor market outcomes has largely ignored the individuallevel component of the error term, instead estimating cross-sectional versions of Equation 2.1 with a relatively limited set of covariates. An obvious concern with such a specification is that failure to account for individual-level heterogeneity or other omitted variables correlated with both being symptomatic of PTSD and earnings will bias estimates of β. For example, reservists who experience other health problems as a result of deployment may be relatively susceptible to experiencing symptoms of PTSD. Reservists whose mental or physical health is compromised prior to deployment may also be more susceptible to experiencing symptoms of PTSD following a traumatic experience. Our data allow us to control for a richer set of pre- and postdeployment health conditions and other correlates of labor market performance (such as ability) than was included in earlier studies. Nevertheless, even with a rich set of controls, concerns regarding omitted variables remain. For example, if ability to cope with stressful situations is negatively correlated with being symptomatic of PTSD and positively correlated with earnings, failure to account for coping skills may generate downward-biased estimates of β.

We can account for any time-invariant individual-level characteristics correlated with being symptomatic of PTSD and earnings by first differencing Equation 2.1 to remove µi:

1 Reservists, when not deployed, earn military pay as a result of inactive-duty training (typically one weekend per month) and active-duty training (typically two weeks per year).

-5-

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