THE SUPPLY PRICE OF COMMITMENT: EVIDENCE FROM THE AIR FORCE ENLISTMENT BONUS PROGRAM

In fiscal year 1999, the US Air Force introduced a bonus program designed to encourage longer enlistment terms. This regime shift provides a unique opportunity to estimate the elasticity of labor supply at a new margin: the length of the employment contract. A $5000 bonus differential is estimated to increase the probability that a recruit will choose a 6-year enlistment over a 4-year enlistment by 30 percentage points. The program is found to be cost-effective relative to other policies to increase man-years.