The Dynamic Cost of the Draft



having to work in an occupation and under circumstances that draftees
would otherwise not have chosen.

Independently on how it is acquired, manning an army or the welfare indus-
try comes at the cost of labor input foregone in other sectors of the economy.
Productivity-based market wages reflect this cost while a purely fiscal per-
spective based on draftees’ arbitrary and low pay understates them.

The draft leads to an ine¢cient match between people and jobs and thus to
an avoidable loss in output. Young men are rather arbitrarily allocated to
military or social work without consideration of productivity, comparative
advantages, and outside options.

The allocation of labor within the military may be ine∏icienl for two rea-
sons. First, cheap labor may lead to an excessive use of personnel and thus
a waste of resources. Second, the productivity of draftees in military and
social sectors is lower than the productivity of professionals due to shorter
periods of training, higher turnover rates and lack of motivation and incen-
tives.

While the static e∏ciency losses of a draft system are sizeable,3 we argue in
this paper that the draft also involves additional dynamic costs that have been
ignored so far. The draft creates an intertemporal excess burden on the economy
by distorting the allocation of time over the life cycle for conscripts, and by
front-loading the cost of financing public services to the early years of life. In
particular, the system postpones or interrupts draftees’ education and training,
shortens their work careers, and reduces the present value of lifetime income.
The draft system thus slows down the accumulation of both human and physical
capital, with negative and lasting impacts on labor productivity and aggregate
output.

Conscription has a negative impact on human capital formation since young
men (and sometimes women) typically are called up to compulsory service during
a period of their lives which they otherwise would devote to learning or gathering
first experiences on the job. In many countries, male high-school graduates do
compulsory military service immediately after leaving school and begin univer-
sity studies or vocational training after finishing the duty.4 Firms may even be
reluctant to train high-school graduates unless they have finished or are exempt
from military service, because military and civil service authorities do not always

3 E.g., Kerstens and Meyermans (1993) estimate that the social cost of the (now abolished)
Belgian draft system amounted to twice the budgetary cost. Reviewing several studies, Lutz
(1996) reports that the opportunity cost of conscription in the German army is between euro
2.2 and 6.7 billion per annum.

4In 1998, compulsory military service in Germany (which lasted 12 months then) on average
delayed the start of university studies by 16 to 18 months (DSW, 2000; Lewin et al., 2000).



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