Income of Working-Age Veterans Receiving Disability Compensation

Summary

The Department of Veterans Affairs (VA) compensates veterans for service-connected disabilities, which are medical conditions or injuries that occurred or worsened during military service. In fiscal year 2022, those payments totaled $125 billion (in 2022 dollars), or roughly 45 percent of the department’s spending. That spending has increased more than fourfold since fiscal year 2000.

In previous reports, the Congressional Budget Office has documented the growth in VA’s spending on disability compensation and trends in veterans’ employment.1 In this report, CBO explores the interaction of those two topics, comparing the earnings, personal income, and household income of working-age male veterans who received VA disability payments with those of veterans who did not receive such payments.2 The results allow policymakers and others to compare the financial security of veterans receiving disability payments with that of veterans not receiving payments as a way to gauge the importance of that compensation.

Characteristics of Working-Age Male Veterans With and Without a VA Disability Rating

CBO used the Census Bureau’s American Community Survey (ACS) data from 2017 to 2019 to estimate that about 30 percent of working-age male veterans (ages 22 to 54) had a VA disability rating. Those ratings, which are the basis for VA disability payments, generally reflect the severity of a veteran’s service-connected medical condition on a scale of zero to 100 percent.

CBO found that veterans with a disability rating were younger, and were more likely to be married and to have a college degree, than veterans without a rating. In addition, a greater share of veterans with a rating were enrolled in postsecondary education, and a greater share had functional disabilities. (Functional disabilities are medical conditions that cause substantial difficulty with physical or mental activities; disabilities determined by VA are defined differently.)

Earnings of Working-Age Male Veterans With and Without a VA Disability Rating

CBO found that veterans without a disability rating earned $62,400, on average. Veterans who received VA disability benefits had average annual earnings that were 16 percent, or $10,200, less than those of veterans who did not receive the benefits. (CBO did not adjust those calculations for demographic characteristics observable in the data.) Veterans with the lowest disability ratings—that is, the least severe disabilities—earned the most, or about 5 percent more, on average, than veterans with no rating. Veterans with a disability rating of 30 percent to 60 percent earned about 6 percent less than veterans with no rating. Veterans with the highest ratings earned the least, or 38 percent less than veterans with no rating.

To compare the earnings of veterans with and without a rating who most closely resembled each other, CBO also estimated earnings by accounting for different characteristics (age, marital status, racial or ethnic group, educational attainment, and region of residence) among veterans by VA disability rating. According to that estimate, veterans with any disability rating earned less than similar veterans without a rating, but the differences between the earnings of veterans without a rating and those of veterans with a rating of 10 percent or 20 percent were small.

CBO also looked at the earnings of a subset of veterans that it referred to as potential workers—those who were neither in school nor functionally disabled. Within that subset, veterans with a rating earned $64,900 a year, on average, or 3 percent less than those without a rating. In particular, veterans with a rating of 60 percent or less had higher average annual earnings than those with no rating. Overall, the labor force participation rate was higher for potential workers than for all working-age veterans.3

When estimating earnings of potential workers to account for different characteristics by disability rating, CBO found that veterans with a low rating (10 percent or 20 percent) earned the same as similar veterans with no rating, but veterans with a rating of 30 percent or higher earned less. The higher the disability rating, the larger the difference in earnings compared with veterans with no rating.

There is no single reason that many veterans with a disability rating earned less than veterans without such a rating. About one-fifth of veterans with a rating were not in the labor force. For some veterans with a rating, poor health may have limited their ability to work. Others may have chosen jobs that paid less or may have chosen not to work because of the extra income they received from VA or for other reasons.

Personal Income and Household Income of Working-Age Male Veterans With and Without a VA Disability Rating

Personal income, which includes VA disability payments, was higher, on average, for veterans who received such payments than for veterans who did not, mainly because disability payments from VA were larger than the average difference in wages. Household income for veterans was similar regardless of the presence of a disability rating—more than $100,000, on average. (CBO did not adjust those calculations for demographic characteristics.)

Limitations of CBO’s Analysis

The disability payment data that CBO received from VA were aggregated by age group, so actual amounts for individual recipients may have been larger or smaller. Similarly, excluding retirement income understated the personal and household income of the small share of military retirees in CBO’s analysis who were receiving those payments. The agency’s analysis is mainly descriptive and cannot identify the causes of differences in income among veterans. Although CBO performed a statistical analysis of the data to better compare similar veterans, those with and without a rating may differ in ways that are not observable in the data, and such factors could also contribute to differences in earnings and income.

Background

In 2022, 18 million men and women in the United States were veterans, or about 7 percent of adults. Most veterans are men, and they tend to be older than non­veterans. About 8 million veterans served during the Gulf War era, which began in August 1990. The remainder served before 1990.4 This report focuses on the income of veterans of the Gulf War era.

The Veteran Population

More than half of all veterans, 54 percent, were under age 65 in 2022. Most working-age veterans—defined in this report as those ages 22 to 54—served in the military during the Gulf War era, which is typically divided into two distinct periods. Those who served between August 1990 and August 2001 are sometimes called Gulf War I veterans. The more recent group, often referred to as post-9/11 or Gulf War II veterans, served during or after September 2001. About 2 million of the 5 million post-9/11 veterans were deployed to operations in and around Iraq and Afghanistan; about 500,000 Gulf War I veterans were deployed to Iraq during the conflict. Nearly two-thirds of working-age veterans served after August 2001.

VA’s Disability Compensation Program

In 2022, nearly 30 percent of all veterans had a compensable service-connected disability, which is a medical condition that develops or worsens during a service member’s time in the military. Among post-9/11 veterans, 40 percent reported a service-connected disability; for Gulf War I veterans, the rate was 30 percent. Compensable conditions range widely in severity and type, from the loss of a limb to hypertension or scars. Such disabilities are not necessarily the same as functional disabilities, which are medical conditions that cause substantial difficulty with physical or mental activities.

Disability Ratings. VA determines whether a veteran has a service-connected disability and rates the severity of each medical condition in increments of 10 percent; a veteran with a 100 percent rating is considered totally disabled. (Some veterans receive no compensation even though they are deemed to have at least one service-connected disability; in those cases, VA cannot determine an actual limitation from the disability, and the assigned rating is zero.)

The cumulative disability rating is not strictly additive but rather is an aggregated, nonlinear combination of ratings for each physical or mental condition.5 Within an aggregated rating, veterans may have different degrees of disability. For example, the rating of a VA-determined medical condition may be based on the physical limitations of the condition (such as the degree to which a veteran can flex a knee) or on the ability to control the condition (such as with diabetes). The nonlinear combination of ratings means that some disability ratings may not accurately reflect the cumulative effect of multiple disabilities. They may have an aggravating effect, or they may have little additional effect on functional limitations and earnings.

Veterans can apply for a disability rating and compensation shortly before separation from the military and at any time after they leave active-duty service. They can also request an increase in their rating if their condition worsens. Veterans’ ratings are rarely revised downward.

Benefits. Disability payments are based on a veteran’s service-connected disability rating (as well as on whether the veteran has dependents or meets other criteria). The Congress sets the payment amounts, and VA determines the criteria for a given rating. In 2023, VA disability payments ranged from $165 per month (in nominal dollars) for a veteran with a 10 percent rating (such as for diabetes managed through diet) to $3,620 per month for a veteran with a 100 percent rating (such as for kidney dysfunction requiring dialysis).6 Among veterans of the Gulf War era, the most prevalent service-connected medical conditions and injuries were related to hearing (6.6 percent of all disabilities), the knee (6.0 percent), and the neck or lower back (4.7 percent). Post-traumatic stress disorder accounted for 3.6 percent of service-connected conditions.7

VA’s disability program is unlike most other disability programs. Veterans do not have to show that their disabilities affect their ability to work or forgo working to receive VA disability benefits. Indeed, most veterans under age 55 who received VA disability compensation in 2022 were employed. Recipients receive the same disability compensation regardless of whether they work or what their income is. (By contrast, to receive benefits under the Social Security Disability Insurance program, a person must be deemed unable to perform “substantial gainful activity.” Recipients are also subject to limits on the amount they can earn, and benefit payments are based on their work history.) VA payments take the form of a tax-free monthly annuity that is indexed to inflation and, with few exceptions, continues for the life of the veteran. Survivors of some veterans with disabilities may also receive VA compensation; the department reported that nearly 500,000 did so in fiscal year 2022.

By law, the Secretary of Veterans Affairs “shall adopt and apply a schedule of ratings of reductions in earning capacity from specific injuries or combination of injuries. The ratings shall be based, as far as practicable, upon the average impairments of earning capacity resulting from such injuries in civil occupations.”8 The current disability ratings are generally based on physicians’ and lawyers’ judgments made in 1945 about the effect of service-connected conditions on veterans’ ability to perform jobs requiring manual or physical labor.9 Since then, substantial advances in medical technology and changes in the economy have affected how accurately those ratings reflect disabled veterans’ reduction—if any—in earning capacity. Changes to the ratings since 1945 have generally focused on improving clinical measures of illness or injury rather than on adjusting payments to reflect economic losses. Further, because the payments are based on average losses, they probably do not reflect an individual veteran’s experience.

The share of veterans and the average payment per veteran receiving VA disability compensation have climbed sharply over the past two decades. According to VA, 9 percent of all veterans in fiscal year 2000 had a disability rating; in 2020, about 25 percent of all veterans did. The average number of medical conditions per veteran increased from 2.5 in 2000 to 5.7 in 2020, and the average rating increased from about 33 percent to about 56 percent over that period. (In 2022, the most common rating for all veterans was 100 percent; 20 percent of them had that maximum rating.) The annual spending per recipient has increased even faster, almost doubling over that period to about $20,000 in 2020 (after adjusting that amount to remove the effects of inflation), CBO estimates.

Those increases since 2000 can be partly attributed to the long conflicts in Iraq and Afghanistan, the aging of the veteran population, policy changes that have made it easier to qualify for benefits (including more conditions considered “presumptive,” for which veterans do not need to prove a service connection), and an expansion of VA’s outreach efforts. An additional reason could be a cultural change among veterans with regard to applying for VA benefits, resulting in much higher application rates for VA disability compensation and in more conditions per application than in previous service eras.

Characteristics of Working-Age Male Veterans Receiving VA Disability Compensation

Various characteristics—including age, education, and sex—influence the employment and, consequently, the income of adults. In this analysis, CBO focused on male veterans included in the ACS who were ages 22 to 54 between 2017 and 2019.

Veterans receiving disability compensation (29 percent of the entire group) were similar to those who did not receive it in some ways but different from them in others. For example, veterans with a disability rating were younger than veterans without a rating, and they were more likely to be married and to have a college degree (see Table 1). Two characteristics, in particular, differentiated veterans with a disability rating: A greater share of them reported that they were enrolled in postsecondary education, and a larger share had functional disabilities. Both factors could substantially affect veterans’ decisions to work and their subsequent earnings.

Age

The median age of veterans with a VA disability rating (age 42) was two years younger than that of other veterans. Because younger workers have less job experience and therefore fewer skills, they may earn less than older workers, on average. Younger veterans were more likely to have served during recent conflicts and, as a result, to have been aware of VA benefits as VA increased its outreach efforts. Younger veterans were also more likely to have been deployed and to have experienced combat than older veterans. In 2019, about 40 percent of all post-9/11 veterans received VA compensation for a service-connected disability, compared with about 25 percent of Gulf War I veterans, who were older, on average, than post-9/11 veterans.

Racial and Ethnic Groups

A majority of service members in the active-duty forces are White, and the same was true of the veterans in CBO’s sample. CBO found that, in general, White veterans were modestly underrepresented in the population of veterans with a VA disability rating, and they had lower ratings. Some researchers have determined that Black veterans earn less than White veterans but earn more than Black men who never served.10 CBO found that as VA disability ratings increased, so did the share of Black and Hispanic veterans in those rating groups.

Educational Attainment

Educational attainment—the highest level of school or degree completed—is strongly related to labor force outcomes in the general population. People with more schooling are more likely to work and to have a full-time job; they also tend to earn more. Estimates of the wage premium for college graduates are well-documented but vary. One study found that the lifetime earnings gap between high school and college graduates (including those with a graduate degree) was about $1 million for men.11

Almost all officers (who account for about 10 percent of new service members each year) have a college degree when they begin their military careers. But most enlisted service members enter with a high school diploma and then pursue higher education during active-duty service or after leaving the military.12

A pronounced difference in educational attainment exists between veterans who received VA disability compensation and those who did not. In CBO’s sample, 34 percent of veterans who received disability payments had at least a bachelor’s degree, compared with 27 percent of veterans who did not receive those payments.13 (In contrast, functionally disabled people have less education, on average, than other adults.) Physical impairments may push veterans with a VA disability rating toward jobs that rely on cognitive skills gained through more education (rather than on physical skills or stamina), and most recent veterans have access to education funding and occupational training through VA.14 Those with further education may also be more aware of VA benefits or better able to navigate the application process for disability benefits than others.

Enrollment in Postsecondary School

CBO found that 16 percent of working-age veterans with a VA disability rating were enrolled in postsecondary institutions, twice the enrollment rate of veterans with no rating (see Figure 1). In general, veteran students were older than typical community college or undergraduate students because they were in their early or mid-20s after completing their first enlistment (when many choose to leave military service). The most recent educational benefit provided by VA, the Post-9/11 GI Bill, pays all tuition and fees at the in-state rate for eligible veterans attending public institutions of higher education and pays a set amount for private institutions (up to $26,400 for the 2022 academic year) for up to 36 months (or four academic years). Veteran students who are enrolled more than half time also receive a housing stipend that is often larger than the tuition benefit. The average payment for tuition and fees, housing, and other educational benefits was $14,400 per recipient in fiscal year 2022.

The Post-9/11 GI Bill is available to all eligible veterans who served on or after September 11, 2001.15 Those educational benefits may be available after serving for at least 30 continuous days if a veteran was discharged for a service-connected disability; otherwise, veterans may receive partial benefits after having served 90 days in the military and full benefits after three years of service. Veterans who left service after 2012 have no time limit on the receipt of those benefits.

Veterans who receive VA disability compensation might be more likely to use the educational benefit for several reasons. First, VA disability compensation may allow students with a disability rating to work less and maintain their level of income while they are in school more easily than veterans without that source of income. Second, for veterans with a rating who earn less than their counterparts, the forgone earnings from attending school are lower. Third, the return on higher education may compensate, or more than compensate, veterans with disabilities who would otherwise earn less over their lifetime. For example, additional education may help veterans with a rating qualify for jobs that do not require manual labor if they have a disability that limits that type of work. Lastly, veterans who are knowledgeable about VA disability benefits may also be more aware of other VA benefits, including the Post-9/11 GI Bill.16

Functional Impairment

Functional impairments—which are defined differently from VA-determined disabilities—may restrict daily activities and the ability to work or affect the income earned from working. The ACS data included respondents’ answers to six questions about whether they had difficulty or serious difficulty in several physical, sensory, and mental domains. Although some veterans might consider a medical condition to be both a functional impairment and a VA-determined disability, those categories differ in several ways. For instance, VA’s definition of a service-connected disability can include medical conditions with mild symptoms. Another difference is that a VA-determined disability must occur or worsen during a veteran’s military service, whereas a functional disability might arise at any time.

About 14 percent of all working-age veterans reported a functional impairment—that is, having difficulty or serious difficulty with hearing, seeing, remembering, walking, self-care, independent living, or a combination of those. (By contrast, about 6 percent of working-age adults in the United States have a functional disability.) About 30 percent of veterans with a VA disability rating reported a functional disability (see Figure 2).17

In the ACS, as the severity of VA disability ratings increased, so did the share of veterans who reported functional impairments. Among veterans with the highest VA ratings, 44 percent cited a functional disability. It is not clear why more than half of those veterans did not report having a functional disability, although several explanations are possible. First, the veterans in that rating group probably were more concentrated in occupations less affected by disabilities or in workplaces with greater degrees of accommodation. Second, those veterans may have had a rating for conditions that are not well aligned with functional limitations, which can happen when treatment and clinical outcomes improve over time but rating criteria have not yet been updated. Third, those veterans may not have considered themselves as having a disability.

Among veterans with a VA rating, the most common functional disabilities were cognitive, ambulatory, and hearing difficulties; about 15 percent of veterans with a VA rating of 70 percent or higher reported limitations in living independently (see Table 2). (Of all veterans with functional disabilities, about 60 percent had a VA disability rating.)

Income of Working-Age Male Veterans

CBO compared the income of all working-age male veterans, ages 22 to 54, who received VA disability compensation with the income of those who did not. The agency looked at personal income, which includes earnings, VA disability payments, and small amounts of other income.

For several reasons, CBO excluded veterans’ retirement payments from personal income and household income. Few adults in the United States are eligible for retirement income before age 55, but some people who served in the military are an exception. Specifically, service members may retire after 20 years of service (some retire earlier because of disability), but few do so. Using the Department of Defense’s administrative data, CBO calculated that about 7 percent of all working-age veterans receive military pensions. More working-age veterans—about 12 percent—reported retirement income in the ACS. Those who did so reported receiving about $24,000 a year, on average, compared with an average military pension of about $33,000 recorded in the administrative data. Many veterans may have erroneously reported VA disability payments as retirement income in the ACS. Veterans with a VA disability rating are probably more likely to receive retirement pay, but because relatively few working-age veterans receive military retirement income, CBO’s measure of personal income includes most of the income that veterans receive.18

Personal income was higher, on average, for veterans who received VA disability payments than for veterans who did not receive them. Aside from earnings and VA payments, working-age veterans had little other personal income from sources such as investments. CBO also compared the household income of veterans with and without a disability rating and determined that the differences were small. This report presents earnings amounts that were and were not adjusted for demographic characteristics, but CBO did not adjust any other calculations or estimates.

Personal Income

Overall, male veterans with a VA disability rating received more, on average, in personal income than veterans who did not have a VA rating. The average annual personal income of veterans with a rating, $70,200, was 10 percent higher than that of veterans with no rating, $63,700 (see Table 3). Veterans with the highest disability rating had the highest annual personal income—$70,800, on average. The share of income from sources other than earnings and VA disability compensation was small.

Calculating Average Earnings. Veterans who received VA disability benefits earned $52,200 a year, on average. That is $10,200, or 16 percent, less than the $62,400 in average annual earnings of veterans who did not receive those benefits (with no accounting for demographic characteristics).19 Differences in earnings by disability rating varied substantially. Veterans with the lowest disability ratings earned the most, or 5 percent more, on average, than veterans with no rating; veterans with the highest ratings earned the least, or 38 percent less, on average, than veterans with no rating.20

To exclude extremely high and low values that often skew earnings calculations, CBO also examined median earnings (the midpoint value). The same pattern emerged for median earnings, which were $43,800 for veterans with a rating and $50,000 for veterans without a rating. The lower median amounts confirm that the averages included workers with very high earnings. Thus, the median may be preferable for describing the typical earnings (or the center of the earnings distribution).

Much of the difference in earnings was probably due to the lower rates of labor force participation among veterans with a rating. Although a majority of veterans were in the labor force, participation rates differed substantially by rating group.21 Veterans with the highest ratings had the lowest labor force participation rate, 62 percent. Conversely, veterans with the lowest ratings had the same labor force participation rate as veterans without a rating, 91 percent. Veterans with a rating of 10 percent or 20 percent probably had relatively minor service-connected medical conditions (such as scars or tinnitus) that did not affect their ability to work. For veterans in the labor force, the average earnings of those with a rating were almost the same as the average earnings of those without a rating (data not shown).

The source of veterans’ earnings—whether from employment or self-employment—differed between veterans who received VA disability compensation and those who did not. Overall, 6 percent of veterans were self-employed. The share of those who were self-employed was higher for veterans who did not receive disability compensation (7 percent) than for those who received it (5 percent), even though disability payments can provide capital for starting a business and for income support, and self-employment could allow the greatest flexibility in work. Self-employment rates were higher among older veterans, regardless of whether they received disability compensation. A recent study of older veterans that took into account differences in veterans’ demographic characteristics found that such veterans were more likely to become self-employed if they received VA disability compensation, although the results of other studies have been mixed.22

Estimating Average Earnings by Accounting for Demographic Characteristics. Although men with the lowest disability ratings earned more, on average, than those without a rating, differing demographic characteristics contributed to that result. Using regression analysis to account for those differences, CBO determined that veterans with any disability rating earned less than similar veterans without a rating.23 The differences between the earnings of veterans without a rating and those with a rating of 10 percent or 20 percent were small, but the higher the rating, the less a veteran earned compared with veterans with no rating.

Those findings from the regression analysis are similar to the general pattern of the prior calculations. That is, veterans with a low rating earned about the same as veterans with no rating. Veterans with a rating of 30 percent to 60 percent earned slightly less. Veterans with a rating of 70 percent or more earned much less than veterans with no rating.

VA Disability Compensation. The average annual VA disability payment for all working-age veterans who received that compensation was $16,100. The average annual benefit for the lowest rating group was relatively small, $2,300; the average annual benefit for the highest rating group was $29,200.

VA’s data show that rating levels and, consequently, VA payments tended to be higher for older veterans. That is, a greater share of older veterans than of younger veterans had a high rating, and the average disability compensation older veterans received was greater, even when the ratings were the same. Older veterans might be more likely to request and receive an increase in their rating as medical conditions manifest or worsen with age. Another reason that older veterans may receive larger payments for a disability rating is that payments increase when they marry and have dependent children. In 2018, VA’s data showed that among all veterans ages 25 to 29 with a VA rating, 8 percent of recipients had a rating at the 100 percent level; for the oldest veterans CBO analyzed, those ages 50 to 54, 13 percent did.24 In addition, younger veterans with a rating of 100 percent (a small group) received $39,900 a year, on average, in VA disability compensation; that amount was 3 percent larger, $40,900, for veterans ages 50 to 54.

Household Income

Average differences in household income between veterans with and without a disability rating were negligible. For veterans with no disability rating, average annual household income was $110,200; for veterans with a rating, it was $108,900. According to the Census Bureau’s data, that income level roughly corresponded to the 70th percentile of American households in 2019.25

Household income varied little among the rating groups. Although annual personal income was higher for veterans with a VA rating, additional income to the household from spouses or other household members was $7,800 less, on average, than it was for veterans without a rating, and the difference was bigger as the average rating increased. The lower average income may have been influenced by several factors: A larger share of veterans with a rating had dependent children, which may have affected spouses’ labor force participation; veterans’ higher personal income may have decreased spouses’ need or preference for work; and caring for a disabled veteran may have affected spouses’ labor force participation.

Income of Working-Age Veterans Who Were Enrolled in School or Functionally Disabled

Although CBO included all working-age male veterans in its analysis of personal and household income, the income and labor force participation of veterans who are enrolled in school or who are functionally disabled differ substantially from those of veterans who are not. For those reasons, CBO estimated the income of those two groups separately from the income of all working-age veterans. The share of male veterans ages 22 to 54 in those groups was relatively small—11 percent were enrolled in school, 14 percent reported a functional disability, and 2 percent were in both groups. Veterans with a disability rating had higher average personal income than veterans without a rating in both samples. Average household income was higher for veterans who were students than for those who were functionally disabled. Veterans who were functionally disabled but did not have a VA disability rating had the lowest average personal and household income.

Veterans Enrolled in School

Veterans enrolled in school had average annual earnings that were about 30 percent lower than the average annual earnings of all veterans. Veteran students were less likely than nonstudents to work, but the majority of them (76 percent) were in the labor force. On average, students with a VA disability rating earned $36,500, about 18 percent less than the $44,700 earned by those without a rating (see Table 3). Average earnings declined as the VA rating increased. For veteran students with the highest ratings, average earnings were about $30,700, or 31 percent lower than the average earnings of those who did not have a rating.

Total personal income for students receiving VA disability compensation was $54,500, on average, or 20 percent more than the total average personal income, $45,500, of veteran students not receiving that compensation. Veteran students with the highest VA ratings had the highest personal income, an average of $60,400 annually. Veterans enrolled in school did not appear to report as income the housing stipend (received as a cash payment) for those using VA educational benefits. The annual benefits received by veterans under the Post-9/11 GI Bill averaged $15,000 per person. CBO estimates that about half of that was for housing.26 Household income was 5 percent higher, on average, for veteran students without a VA rating.

Functionally Disabled Veterans

Veterans who reported functional disabilities earned less, on average, and were less likely to be in the labor force than other veterans. As with the other groups (all veterans and veteran students), those with the highest VA disability ratings earned the least—about $24,200 a year, on average, or 28 percent less than veterans without a VA rating (see Table 3). The average earnings of veterans with the lowest ratings, however, were substantially higher than the average earnings of those without a rating. The majority of veterans with functional disabilities were in the labor force, except for those with the highest ratings.

Personal income was lower by one-third, on average, for veterans with functional disabilities who did not have a VA rating than for those who did have a rating.27 Income for veterans with functional disabilities in the form of federal or state aid was, on average, relatively low: Altogether, other income (that is, neither earnings nor VA disability compensation) was not more than $4,400, on average, for any rating group. CBO determined that about 14 percent of veterans who reported a functional disability received Social Security Disability Insurance benefits averaging $13,400 annually. (Overall, among veterans receiving VA disability compensation, 6 percent received those benefits.)

The annual household income of veterans with functional disabilities was also lower, on average, than that of veterans in school and of all working-age veterans. As with total personal income, veterans with the highest disability ratings had the highest total household income—$89,500 a year, on average—among the subset of functionally disabled veterans. Veterans who were functionally disabled and did not have a VA rating had the lowest total household income, $75,700, of all the veteran groups that CBO examined.

Income of Potential Workers

CBO analyzed the earnings and other income of potential workers—veterans who were not enrolled in school or functionally disabled and thus most likely to be working. For that group, as with the others, CBO compared veterans with and without a VA disability rating without accounting for differences in demographic characteristics. The same general patterns mostly persisted as with all veterans:

• On average, veterans with a rating of 10 percent or 20 percent earned the most;
• Veterans with a disability rating had higher personal income than veterans with no rating; and
• The differences in household income among all groups of potential workers were relatively modest, typically less than $10,000 (see Table 4).

  Table 4.

  Average Income and Labor Force Status of Male Veterans Ages 22 to 54 Who Were Potential Workers, by VA Disability Rating

  Thousands of 2019 dollars

  

  Notes

  Data source: Congressional Budget Office, using data from the Census Bureau’s American Community Survey, 2017 to 2019, and the Department of Veterans Affairs. See www.cbo.gov/publication/59380#data.

  The Department of Veterans Affairs (VA) provides tax-free disability compensation to veterans with medical conditions or injuries that occurred or worsened during active-duty military service. VA determines the severity of each medical condition and assigns ratings in increments of 10 percent.

  Potential workers are male veterans who were not enrolled in school and did not have functional disabilities. Functional disabilities are medical conditions that cause substantial difficulty with physical or mental activities, as self-reported in the American Community Survey. Disabilities determined by VA are defined differently, but some medical conditions qualify as both.

  Earnings are income that an employee received in the previous 12 months in the form of wages and salaries (including tips, commissions, and bonuses), as well as self-employment income from a business, professional practice, or farm after subtracting business expenses from gross receipts. The average includes respondents who had no earnings.

  For these comparisons, CBO restricted its data sample to male veterans ages 22 to 54 who were U.S. citizens and had a high school diploma or higher. CBO did not adjust the results for demographic characteristics.

  Median earnings were lower than the averages reported in the table. For example, median earnings for veterans with no VA disability rating were $52,100; for those with a rating, median earnings were $55,000.

  Veterans in the labor force either were working or were not working but were available for and actively looking for a job.

For the regression analysis of earnings, CBO found that among potential workers, veterans with the lowest ratings earned the same as similar veterans with no rating. Veterans with a rating of 30 percent or higher earned less, on average, than similar veterans with no rating.

Calculating Average Earnings

Among potential workers, average annual earnings were similar for veterans with no rating, who earned $66,800, and those with a rating, who earned $64,900 (or 3 percent less). Median earnings, which are not skewed by extremely high or low values, yielded a different result, indicating that veterans with a rating typically earned 5 percent more than veterans without a rating. Median earnings for veterans with a rating were $55,000, compared with $52,100 for veterans without a rating.

Veterans with a rating below 70 percent earned more than veterans without a rating. Those with the lowest ratings earned 9 percent more, on average, than veterans without a rating, and those with a rating of 30 percent to 60 percent earned 2 percent more. Higher average earnings among the lower rating groups may be attributed, at least in part, to the concept of selection: Those with more ability or more motivation—and who, consequently, have higher average earnings—may also be more aware of VA disability benefits and more likely to apply for them. That trait is impossible to observe directly but has been considered by other researchers.28

Veterans with the highest ratings earned 20 percent less, on average, than veterans with no rating, partly because 22 percent of them were not in the labor force at the time of the survey and had little or no income from wages or salaries in the previous 12 months. Overall, the labor force participation rate of veterans without a VA disability rating was 6 percentage points higher than that of veterans with a rating.

Federal preferences in hiring and promotion may play a role in supporting the work and earnings of certain veterans, particularly those with service-connected disabilities. Partly to retain veterans who might otherwise exit the labor force, legislation enacted in 1944 (and amended many times since then) gives veterans who have VA-determined disabilities or who served in certain conflicts preference in hiring and promotion for positions in the federal government. The result has been a significant concentration of veterans in the federal civilian workforce. CBO found that potential workers with a VA rating—and all veterans—make up a larger share of federal workers (21 percent) than those with no disability rating (11 percent), probably in part because they receive greater hiring preference than veterans who do not have a disability rating. In addition, one in four potential workers with a service-connected disability rating of 70 percent or higher was a federal worker (or had been before exiting the labor force). (By contrast, the Bureau of Labor Statistics reported that, in August 2019, federal workers made up less than 2 percent of the U.S. workforce.)

Federal preferences may cause a larger share of veterans with disabilities to work and, consequently, to increase their average earnings. However, greater federal employment could lead to lower or higher earnings for working veterans. On the one hand, the private sector pays more, on average, to college graduates, so the earnings of veterans with greater educational attainment who work for the federal government could be lower than they would be otherwise. On the other hand, because the federal government pays higher wages (and provides better employee benefits), on average, to workers with only a high school degree than the private sector does, average earnings of those veterans could be higher than they would be otherwise.29

Personal income was higher for veterans with a rating than for those without a rating by $12,300, or 18 percent, on average. Those findings are unsurprising because average earnings were higher or about the same for veterans with ratings up to and including 60 percent and because veterans with a disability rating had additional income from VA. For veterans with the highest ratings, personal income was $16,600, or 24 percent, higher than it was for veterans with no rating. On average, other income in the form of investments, Social Security Disability Insurance payments, and state and local aid were only a small portion of veterans’ personal income, 2 percent or less for each group. Veterans with no rating had the lowest average total household income, $114,600.

Estimating Average Earnings by Accounting for Demographic Characteristics

Estimates from the regression analysis changed the results slightly, suggesting instead that veterans who were potential workers with a rating of 60 percent or less did not earn more than similar veterans with no rating. That analysis indicates that, for potential workers, veterans with a rating of 10 percent or 20 percent earned the same, on average, as similar veterans with no rating. As in the previous findings, veterans with a rating of 30 percent to 60 percent earned less than similar veterans with no rating. For veterans with the highest ratings—many of whom probably had more severe health problems—the difference in earnings was greatest.

Higher educational attainment among veterans with a VA rating accounted for some of the differences in average earnings between those with a rating and those without. (Among potential workers with a VA rating, 38 percent had earned at least a bachelor’s degree, compared with 28 percent of those without a rating.)30

CBO also looked at a subset of potential workers—those who were working. Estimates of the regression for that group suggest that veterans with the highest ratings still earned less than veterans without a rating, but the gap was smaller. Veterans who were working had greater educational attainment and were more likely to be married and White than those who were not in the labor force. Veterans with a rating were also more likely to work in managerial, professional, and related occupations than veterans with no rating.

Possible Reasons for the Lower Earnings of Many Veterans Receiving Disability Compensation

CBO found that veterans with a VA disability rating of 70 percent or higher had much lower earnings, on average, than veterans without a disability rating.31 For other veterans, those with the lowest ratings earned about the same as veterans with no rating, whereas the earnings of those with a rating of 30 percent to 60 percent were typically between the earnings of the highest and lowest rating groups. Possible reasons for lower earnings among many veterans with a disability rating include differences in skills, prior workforce experience, and other factors that are hard to identify. CBO focused on two main reasons for lower average earnings among veterans with a VA rating, particularly those who were potential workers: poor health and additional nonlabor income from VA.

Effects of Poor Health

Poor health is one likely explanation for the lower labor force participation and lower average earnings of veterans who receive VA disability compensation. Adults who have disabilities in the United States generally work less and earn less than adults of the same age without disabilities.32 Among veterans, however, the extent of health differences between those with a rating and those without one is unclear, as is how much those differences affect labor market participation and average earnings. Research by others has found that combat exposure among veterans led to higher rates of injury and mental illnesses.33 Mortality rates may also be higher for veterans with service-connected disabilities than for other veterans.34

One measure of ill health is the presence of functional disabilities. A third of respondents in the ACS who had a VA rating reported functional disabilities, although veterans with the same rating may experience different limitations on their ability to work. The most common functional limitation noted in the ACS data was cognitive, reported by 16 percent of veterans with a rating. That sort of disability might be harder to accommodate or to overcome in the workforce than other types of impairments. If so, poor health could lead to lower earnings for veterans who accept a lower-paying job or who work less or not at all. (When limitations are accommodated in the workplace or the veteran’s occupation is largely unaffected by the medical conditions, their effect on earnings may be minimal.)

However, functional disability may not be a good measure of health. More than half of veterans with a VA rating did not report any functional disabilities, which suggests that health did not limit their ability to work. It could be that, because health status is difficult to measure, the survey questions about functional disability might not completely reflect work-limiting medical conditions. Some researchers posit that the VA rating system does not correlate well with limitations on working or the likelihood of working, possibly because ratings do not measure overall performance or assess the effect of disability on function.35 Others found a higher mortality rate for veterans with a VA rating than for those without; that difference was substantially lessened—but did not disappear—when the presence of functional disabilities was taken into account.36 In general, little research exists about the effects of health on the earnings of veterans receiving VA disability compensation, particularly with regard to functional disabilities.

Effects of Nonlabor Income

VA disability compensation, a source of income not tied to the recipient’s earnings, could also explain veterans’ lower workforce participation rates and earnings through what is known as the income effect. Having more nonlabor income gives veterans flexibility in job decisions because they are not as dependent on earnings for household income. For veterans who receive VA disability payments and remain in the workforce, that VA compensation, along with free VA health care and other benefits, may allow them to choose part-time employment, less demanding occupations, or a lower-paying job that they prefer to higher-paying options. For example, some researchers have shown that VA disability income has allowed some older veterans to start their own business or retire gradually through self-employment.37

The additional income from VA may have allowed some veterans to leave the labor market entirely.38 Other research—often focusing on Vietnam veterans—has found that veterans who receive VA payments have lower labor force participation rates than they would have otherwise because the current program creates a disincentive to work.39

Veterans in CBO’s analyses might also have had certain family support, assets, or other types of income—such as an inheritance—not reported in the ACS that affected their choice not to work. Nearly one-quarter of veterans receiving VA disability compensation who were not in the labor force had at least a bachelor’s degree, so their opportunity cost of not working was presumably high.

CBO’s Approach to Analyzing Veterans’ Earnings and Other Income

To compare the income of working-age veterans who have VA-determined disabilities with that of other veterans, CBO analyzed data from the ACS and administrative data on disability payments from VA. The ACS is among the largest of the Census Bureau’s surveys, reaching about 2 million households each year, and is designed to represent the entire U.S. population.40 Households responding to the ACS provide information on demographics, earnings and other sources of regularly received income, employment status, functional disabilities, VA disability rating, and military service, among other subjects. CBO used administrative data from VA to determine VA disability payments, in part because those payments are mingled with several other types of income in a residual category in the ACS. The ACS data include only the number of veterans receiving VA disability compensation, not the specific amount of that compensation. CBO used VA’s data on average payments by disability rating, age, and sex to estimate the average payment to each veteran in the ACS.

CBO’s sample from the ACS represents a total of 13.3 million male veterans, ages 22 to 54, in 2017, 2018, and 2019 combined. Because the labor market experiences and income of men and women differ substantially, CBO focused its analysis on men, who constitute the majority of veterans. (For an overview of the characteristics and income of female veterans, see Box 1.) Veterans under age 22 were excluded because they probably left the military before the end of their initial enlistment contract and are therefore unlike other veterans. Using three years of combined data gave CBO a large enough sample to examine how outcomes varied across VA rating groups. CBO analyzed the outcomes of veterans with a VA disability rating in the years immediately before the coronavirus pandemic. The pandemic influenced employment and income in ways that were not typical, and it affected the Census Bureau’s data collection efforts and the resulting quality of the data in its survey.

CBO first segmented the sample group into veterans with and without a VA disability rating and then sorted those with a rating into three categories—10 percent or 20 percent, 30 percent to 60 percent, and 70 percent or higher—to see how outcomes differed by rating group.41 Those groups were aggregated in the ACS, and CBO could not determine the precise rating for each veteran.42 Additionally, the agency assigned the sample to three subgroups: veterans who were enrolled in school, those who reported a functional disability, and the remainder, who were potential workers. Veterans could be in both the group enrolled in school and the group that reported a functional disability.

CBO added earnings (which include salaries, wages, and self-employment income), VA disability payments, and other nonlabor sources of income to construct annual personal income.43 The agency reported average disability payments and average total income because VA’s data were provided as averages.

CBO’s definition of total household income differed from that in the ACS to reflect the agency’s construction of personal income. To calculate household income, CBO used the amount provided in the ACS and then subtracted income from the survey’s “retirement” and “any other sources” categories and added VA’s data on disability payments.

Analyzing the Average Income of Veterans

CBO estimated the earnings, VA disability compensation, other personal income, and total household income for veterans with and without a VA disability rating. The agency also reported labor force participation because that is the source of the earnings. For the analysis in this section, CBO calculated average earnings and did not account for any differences in veterans’ demographic characteristics.

CBO looked at veterans enrolled in school separately because the labor market decisions and outcomes of adult students differ from those of other working-age adults. Veterans in school may make different employment decisions because they receive support from VA for their education. They may prefer not to have a job while concentrating on their studies, or they may accept certain low-wage or part-time jobs only while in school. The financial and personal returns on postsecondary education can be substantial; thus, veterans who are in school probably have better long-term prospects in the labor market than veterans who do not seek additional education. Lower rates of labor force participation or lower earnings of veterans in school may be a misleading indicator of their later labor market outcomes.

CBO also looked separately at veterans who reported a functional disability because people with those disabilities are unlikely to make the same decisions about working as other adults. For example, people with functional disabilities may not be able to perform certain jobs or to be employed at all. In addition, some functionally disabled people receive monthly benefit payments from the federal government, beyond those provided by VA.

Veterans in the final group analyzed by CBO, identified as potential workers, were not in school or functionally disabled and thus were the veterans most likely to be employed. Because potential workers are the largest of the three subgroups, accounting for 77 percent of all veterans ages 22 to 54, any differences in income between veterans with and without a disability rating are of particular interest. Nearly 60 percent of veterans who reported a rating were potential workers.

Using Regression Analysis to Estimate Earnings of All Veterans and of Potential Workers

For most working-age men in the labor force, earnings are the single largest source of income. CBO conducted a detailed analysis of the earnings of all working-age male veterans and of the subset of potential workers. Specifically, CBO used regression analysis to account for differences in demographic characteristics among veterans. That technique—an alternative to calculating the average values—allows analysts to estimate annual earnings by controlling for factors that might influence the amount of earnings. Because VA makes disability payments to veterans whether or not they work, CBO included veterans who were not in the labor force at the time of the survey and who reported little or no earnings. That is, some veterans included in the analyses of earnings had no wages or salary.

Limitations of CBO’s Approach

CBO’s study has limitations that are common to any analysis based on survey data: The data may be inaccurate because of misreporting and because some people may not answer certain questions. Both problems have been extensively noted.44 Information about wages and salaries is generally reported correctly, except for self-employment income, which may not be reported or may be under­reported.45 The consequences of those errors were probably minimal in this report because only about 6 percent of veterans in CBO’s sample reported being self-employed, and veterans, on average, earned little of their income from self-employment (about $2,300 annually).

In addition, because CBO did not include retirement income, personal income and household income are probably underestimated for a small share of veterans. Because relatively few veterans receive such income, however, the results presented should be largely unaffected.

CBO used VA’s data to estimate the average amount of disability compensation veterans received by disability rating and age range. Actual amounts per person may have been larger or smaller. Moreover, CBO did not know the medical conditions for which a veteran received a VA rating, nor did the ACS survey ask respondents for their exact rating (so that, within the survey’s “70 percent or higher” category, for example, CBO did not know the share of veterans with a rating of 70 percent, 80 percent, 90 percent, or 100 percent). The highest rating group, 70 percent or higher, probably had the most variance in individual payments because the increase in payments from one rating to the next is nonlinear. For example, veterans with a rating of 100 percent receive about 40 percent more than those with a rating of 90 percent.

CBO did not estimate the causal effects of VA disability ratings. Although the agency used regressions to better compare similar veterans, those with and without a rating may differ along dimensions not observable in the data, and those factors could also contribute to differences in earnings and income. Specifically, CBO could not determine whether earnings differences stemmed from poor health among veterans with a VA rating, from veterans’ choosing to earn less because of the extra income provided by VA disability compensation, or from other reasons that CBO could not observe. CBO did not take into account changes in behavior that may have been attributable to receiving VA disability compensation; the unusual nature of VA’s disability program make such changes in behavior difficult to estimate. Finally, CBO did not determine the adequacy of payment amounts associated with a VA rating.

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About This Document

This report was prepared at the request of the Ranking Member of the Senate Committee on Veterans’ Affairs. In keeping with the Congressional Budget Office’s mandate to provide objective, impartial analysis, the report makes no recommendations.

Elizabeth Bass and Heidi Golding prepared the report with guidance from David Mosher and Edward G. Keating. Justin Falk, Rebecca Heller, and Julie Topoleski offered comments. David Arthur fact-checked the report.

Courtney Coile of Wellesley College, Meredith Kleykamp of the University of Maryland, Patrick Mackin of SAG Corporation, and Jonathan Vespa of the Census Bureau commented on an earlier draft. The assistance of external reviewers implies no responsibility for the final product; that responsibility rests solely with CBO.

Jeffrey Kling and Robert Sunshine reviewed the report. Rebecca Lanning edited it, and R. L. Rebach created the graphics and prepared the report for publication. This report is available on CBO’s website at www.cbo.gov/publication/59380.

CBO seeks feedback to make its work as useful as possible. Please send any comments to communications@cbo.gov.

Phillip L. Swagel

Director

December 2023