Investments in Education Are Money well Spent for the German State

German State revenues generated by taxes and duties of employees with a vocational training or a university degree are considerably higher than the public expenditures invested in their education. On average, the fiscal net revenue for the treasury per trainee throughout their entire working life totals EUR 124,000 for employees with a vocational training as compared to those without a formal education, and EUR 97,000 for employees with a university degree as compared to those with a vocational training. Therefore, education investments are money well spent for German public authorities. These are the findings of a study on returns to education investments in Germany, which was carried out by the Centre for European Economic Research (ZEW) in Mannheim and supported financially by the Federal Ministry of Education and Research (BMBF).

On average, the calculated fiscal net revenue for a vocational training is EUR 124,000, corresponding to a return rate of 15.8 per cent. The return to a university education amounts to EUR 97,000, corresponding to a return rate of 5.2 per cent. The return to human capital investment is therefore considerably higher than the return on a ten-year federal government bond, whose rate of return is currently below one per cent. Public investments in education are particularly profitable as they help to prevent people from depending on welfare benefits.

"Investments in education promote cognitive and non-cognitive skills and thus improve individual performance", says Friedhelm Pfeiffer, scientific head of the study at ZEW. "The results also reveal that people benefit from private investments in their own education, since higher incomes are generated in professional life due to improved performance."

The Federal Minister for Education and Research, Johanna Wanka, commented on the study: "Education pays off, for the individual as well as for society as a whole. The Federal Government thus has a clear emphasis on further increasing the investment in education and research. An 8.6 per cent budget increase to EUR 15 billion for the Federal Ministry of Education and Research is planned for 2015 alone."

The results of the study are based on the ZEW micro-simulation model that relies on representative data from 2012 of the Socio-Economic Panel (SOEP). The model facilitated the simulation of different qualifications and thus the comparison of the fiscal and individual costs and returns of a university education to those of a vocational training and to those of the option neither vocational training nor university education. The simulation was based on the 2014 legislation. The study not only considers phases of full-time employment but also phases of part-time employment and non-working phases, including unemployment, retirement, or parenting.

Contact

PD Dr. Friedhelm Pfeiffer, Phone +49(0)621/1235-150, E-mail pfeiffer@zew.de

Dr. Holger Stichnoth, Phone +49(0)621/1235- 362, E-mail stichnoth@zew.de

Complete study (in German, as PDF, 1,07 MB)