Economic Costs of Reintroducing Conscription or a Compulsory Social Year

Tasks

The Russian war of aggression against Ukraine has worsened the European security environment. In response, the reintroduction of conscription is being discussed in Germany. Conscription may help to overcome the armed forces’ personnel shortages, to build a reserve which could fight in case of war, and to increase general resilience. In this project, various scenarios for implementing conscription are discussed and their respective economic costs are estimated. With a price tag attached, conscription can be weighed up against other security policy measures.

Methods

The economic costs of conscription are estimated using an overlapping generations model. The calibration is based on demographic and economic data for Germany in 2023. The three scenarios to be analysed differ in the proportion of a cohort which is conscripted: 5% scenario (‘Swedish model’), 25% scenario (‘old German conscription’) and 100% scenario (‘compulsory social year’). In the model, conscription means that conscripts have to make their entire labour force available to the armed forces for one year for a relatively low salary. This distorts their later career and educational decisions. In addition, tax increases are necessary to finance the salary of conscripts. We quantify the resulting economic costs. We also compare the costs between conscription and a comparable market solution. For each scenario, we examine a market solution that generates the same increase in the labour supply for the armed forces, but relies on market mechanisms instead of compulsory service.

Results

Our model estimates the decline in private consumption as a result of the reintroduction of conscription at EUR 4bn in the 5% scenario, EUR 20bn in the 25% scenario and EUR 79bn in the 100% scenario. In contrast, a market solution would be less costly. The decrease of private consumption in the market solution is estimated at EUR 3 billion in the 5% scenario, EUR 14 billion in the 25% scenario and EUR 56 billion in the 100% scenario. The overall economic costs caused by conscription are borne to varying degrees by conscripts and non-conscripts. While conscripts experience a 2.7% drop in their consumption in the 5% scenario, non-conscripts consume practically the same as in the status quo. The burden of conscription therefore lays mainly with the conscripts. With the market solution, on the other hand, there are no differences within society. Everyone contributes equally to the costs via taxes.