refrain from calling young men to service during their formal vocational training.
Most young men without high-school degrees are drafted shortly after finishing
their apprenticeship or vocational training. The draft prevents them from deep-
ening or acquiring relevant professional experience, and freshly gained job-specific
skills depreciate during compulsory service.5
Apart from distorting human capital accumulation, there is a second channel
through which the draft might impose a dynamic burden on society. Draftees
typically earn a low payment, and the difference between this payment and the
market value of their labor supply corresponds to a supplementary income tax
levied exclusively on draftees during the service. Taxes could alternatively be
collected from all age cohorts alive in a certain period (possibly including the
non-drafted part of the population). This is basically the way how a voluntary
military is financed. Appropriately designed, such a general tax could, in every
period, earn the same revenue for the government as the specific tax on draftees’
income. However, by spreading tax liabilities more evenly over the life cycle the
general tax would come at a much smaller cost in terms of the present value of
lifetime income than a single and non-recurring supplementary tax on income
during conscription. In the presence of consumption smoothing, a more even
spread of tax liability over the life cycle would increase private saving and the
accumulation of physical capital.
The adverse effects of the draft system on human and physical capital have
not received much interest in the literature. To our knowledge, no study exists
that deals with the impact of the draft on physical capital while only few studies
discuss human capital issues of the draft. In passing, Fisher (1969) mentions the
impact of the American draft lottery in the 1960s on human capital decisions and
suggests that uncertainty might impose a dynamic cost on the economy. In an
econometric analysis, Imbens and van der Klaauw (1995)find that conscription in
the Netherlands during the 1980s and early 1990s reduced earnings for conscripts
by 5 per cent relative to the non-drafted men of the same cohort. Similar results
are obtained by Angrist (1990) for American Vietnam War conscripts. In an
empirical study of wage effects due to career interruptions in Germany, Kunze
(2002)finds that compulsory service increases wage income for men by 3.2 percent
during thefirst year after conscription and depresses wage income beyond thefirst
year, where the gap in wages increases with time.6 To the extent that earning
differentials reflect differences in human capital formation, empirical evidence
5 Time spent in the military or in the social sector is not entirely wasteful with respect to
human capital accumulation, but the skills aquired there are of only limited value to most
draftees.
6 Kunze (2002) suggests that the increase in wage income during thefirst year after conscrip-
tion is driven by effects unrelated to human capital, e.g. by signalling effects. Alternatively,
the wage increase immediately after conscription might be caused by lower wage offers before
conscription since the authorities sometimes call up people during apprenticeship or vocational
training.