Does Wage Premium Exist for Those Who Fulfilled Compulsory Military Service? Evidence from Simple Mathematical Models and Descriptive Analyses

Abstract

This paper presents a theoretical model and tests the hypothesis descriptively that people who fulfilled compulsory military service have wage premium in the South Korean labor market. Simple models are developed to explain both the taste-based discrimination and statistical discrimination which can possibly lead to a wage premium for the non-exempted person. The descriptive OLS analysis shows that a wage premium does not exist for those who have fulfilled military duty. The strict causal interpretation cannot be granted for the estimated result, however, because of the endogeneity of the exemption status. We therefore argue that future studies should engage in isolating the causal impact of the exemption on labor market outcome in order to derive useful policy implications.