Military Spending and Income Inequality

Abstract

While volumes have been written on the individual topics of military economics and income distribution, only scant attention has been paid to the potential impact of military spending on the distribution of a nation's income. The traditional academic focus on the military has centered on issues such as spending impacts on employment, income and inflation, or on whether industrialized countries, in particular the United States, have become too dependent upon the military for their economic well being. Above and beyond these concerns, there is evidence that military spending is associated with increasing income inequality. Among other reasons this association exists because of pay differentials in civilian vs. military related work (including direct armed forces activities as well as military contract work), because of fewer opportunities for women and minorities among military contractors, which then exacerbates existing gender and race pay differentials, and, lastly, because of the profitability of military related contracts relative to commercial production. The relationship between military spending and the distribution of income is examined for the United States during the post-Vietnam War period using time-series data. Empirical estimates reveal that military spending is indeed associated with increasing income inequality, after controlling for macro-economic variables such as taxes, economic growth, interest rates, inflation and non-military spending. The results are generally robust to alternative definitions of both the military spending and income distribution measures.