The Pay Gap Myth

February 15, 2008 • Commentary
This article appeared on United Press International on February 15, 2008.

Frequently in the history of military and security issues the public and policymakers take for granted the conventional wisdom of the day. That is, until it is proven false.

Such was the case with the bomber gap, which was the unfounded belief back in the late 1950s that the Soviet Union had gained an advantage over the United States in deploying jet‐​powered strategic bombers. Widely accepted for several years, the gap was used as a political talking point in order to justify greatly increased defense spending. Subsequently surveillance flights by U-2 aircraft indicated that the bomber gap did not exist.

A few years later there was the missile gap, which was used by John Kennedy as a campaign issue when he ran for president. This was the belief in the United States that there was a disparity between the number and power of the weapons in the Soviet Union and U.S. ballistic missile arsenals during the Cold War. The gap only existed in exaggerated estimates made by the Gaither Committee in 1957 and U.S. Air Force in the early 1960s. Eventually the CIA provided figures that were much lower and gave the United States a clear advantage.

Fast forward 50 years and now we have the pay gap. This is the belief that private security contractors are being paid vastly more than regular military forces. This supposedly creates low morale and jealousy in the ranks of the regular armed forces and causes friction between them. It also supposedly is a contributing factor in retaining people in the military, as many of them reportedly leave at the end of their enlistment to take up jobs in the PSC sector.

This is most distressing, if true. Soldiers, marines, airmen and sailors make tremendous sacrifices on behalf of the country. They deserve to be well compensated, both in direct terms and relative to the civilian population.

And, as it turns out, notwithstanding scandals about veterans care, they are. Consider a study on military compensation released by the Congressional Budget Office in June 2007. It looked at all the factors, such as basic pay, housing and subsistence allowances, and associated tax advantages to which each service member is entitled. The Pentagon has used that regular military compensation as a fundamental measure of military pay since at least 1962.

Another more complete, measure includes non‐​cash and deferred cash benefits, such as healthcare for current service members and their families, the healthcare and other veterans’ benefits that members can receive once they leave the military, and retirement pay and health benefits for members who serve for at least 20 years or become seriously disabled. Military personnel and their families are also eligible for subsidized child care and groceries, the use of physical fitness and recreational facilities, free legal and financial counseling, and other family‐​support programs.

Finally, even within the confines of purely cash compensation, service members can receive special pays, bonuses and allowances that are not counted in RMC. Special and incentive pays are usually awarded for particular skills or for hazardous duty, including deployment and combat. Members may also earn bonus payments when they re‐​enlist for several more years, especially if they have occupational skills that are in short supply.

But because all of those types of pay are either earned by relatively few specialists or are earned irregularly, they are not generally included in the RMC measure.

Admittedly, it is hard to make exact comparisons, given the inherent differences between military and civilian life, but it appears that regular military forces do not do that badly.

According to the CBO a 20‐​year‐​old high school graduate with no dependents who had reached the pay grade of E-3 earned about $33,000 in cash compensation in 2006, as well as $28,000 in non‐​cash and deferred benefits. A similar member in grade E-6 with 12 years of service received a total of about $96,000 in pay and benefits, and a 40‐​year‐​old E-8 earned total compensation of about $127,000.

Other studies in recent years have come out with similar numbers. In a 2004 analysis, CBO estimated total compensation per service member at $107,600. A 2004 study by the Center for Naval Analyses estimated average compensation at $94,900 for Navy personnel.

In a 2005 report, the Government Accountability Office estimated that compensation for active‐​duty service members averaged $115,500. That higher figure was partly attributable to continued increases in military compensation.

An unpublished Pentagon study from 2005, which included the costs of military training and travel as well as expenditures outside the DoD budget, estimated compensation at $138,000 per service member in fiscal year 2005.

According to Cindi Williams, a former assistant director of the Congressional Budget Office, where she led the National Security Division, overall “job security is better” for regular military forces, given that their career could span 20 years, where a PSC has only a limited contract. She also said that “the benefits package, including healthcare and retirement, is better.”

Now consider just a few aspects of the security contractor. He may work for a firm that actually cares about his well‐​being, or he may not. If the experience of those who were killed in Fallujah in 2004 while working for Blackwater tells us anything, it says that companies may be more interested in holding down expenses than in giving their employees all the resources (such as properly armored vehicles, required tail gunner) they need. And Blackwater would hardly be the only firm like that.

In that sense PSC and regular military forces may be more alike than they know; they are both examples of the old cliche, nothing is too good for our boys so that’s what we’ll give them, nothing.

In terms of insurance, security contractors get coverage under the Defense Base Act, a World War II law requiring employees who work on national or international government contracts to be provided insurance, including compensation benefits in the event of their deaths. But some families may not know they are entitled to such benefits and never officially report their family member’s death.

Incidentally, back in 2005 the Pentagon amended the Defense Federal Acquisition Regulation Supplement to address issues related to contract performance outside the United States. Many observers noted that the rule appeared to shift too much risk to contractors. One respondent noted that the use of the term “inherently dangerous” in paragraph (b) of the clause could jeopardize a contractor’s ability to obtain insurance coverage under the Defense Base Act and other provisions.

Also, bear in mind that most of the security contractors are not American — even though that is not supposed to make a difference under DBA the reality is that it does. Some companies that employ foreign nationals may neglect to report the injuries or deaths of employees.

If nobody reports the incident to the Department of Labor, and the family does not file a claim, it has no way of knowing what has happened. In short, the system is totally based on the transparency and honesty of the contracting firm to do what the law says it must do.

Some things, however, remain the same. Just like in civilian life the real winners are the insurance companies. As PSC casualties have steadily mounted, insurance rates skyrocketed, from an average of $4 to $8 for every $100 of a company’s payroll costs, to $20 for every $100. Insurance for a worker making $100,000 a year — not unusual in Iraq — would cost an employer $20,000. That cost, in turn, would be built into the company’s contract with the Pentagon — in effect being paid by U.S. taxpayers.

The increase puzzles U.S. officials because of the reimbursement guaranteed under the War Hazards Compensation Act. The act, also passed in the 1940s, was designed to persuade insurers to write policies for danger zones. The government agrees to reimburse insurers the full cost for combat‐​related deaths and injuries, plus 15 percent in administrative fees.

In Iraq, industry observers predict the United States will reimburse hundreds of millions of dollars to the insurance industry. Death claims have routinely resulted in payments of $1.2 million to $1.8 million each, depending on the salary and age of the worker. With more than 300 death claims filed so far, that means U.S. taxpayers may pay more than $500 million to insurance companies.

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