The Dynamic Cost of the Draft

and a significant share of their time otherwise would be spent on learning. They
compensate for the initial loss in learning by raising learning efforts in the first
couple of years after conscription. Lifetime income is reduced by the ine∏icienl
allocation of time and the supplementary tax payments during conscription, and
conscripts raise learning efforts late in the life cycle to compensate for the income
loss.

Non-conscripts, on the other hand, marginally reduce their learning period.
The increase in the interest rate reduces the present value of the return to learning
and leads to a reduction in human capital accumulation. Investment in human
capital is also reduced by the decrease in the net wage rate. The reduced net wage
rate leads to an increase in the demand for leisure. Earlier retirement reduces the
amortization period for investment in human capital and leads to less learning.
Hence, the opposite changes in net factor prices both have negative impacts on
learning efforts by non-conscripts.

Figure 3a. Training for conscripts (∙ = 0.25 and * = 0.50)

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