Human Capital Revolution or Educational Inflation? about the Losses in the Return on Educational Investment for Younger Cohorts in Old Age

In Germany debates in the 1960s led to extensive educational reforms. Unquestionable, these quantitative and qualitative changes in educational participation reduced inequalities. However, individual outcomes of an increasing educational participation are an ongoing touchstone for investigation: Assuming a limited number of qualified positions on the labour market, the expansion of high skilled workers should lead to a growing competition for these positions. Thus, one can expect a relative devaluation of the economic value of these qualifications (educational inflation). In contrast, the driving force for investments in human capital was the demand for labour in high skilled positions.

I compare four cohorts in the pre- and post-educational era to observe differences in the return on investment during career start (a five-year period starting with job search or first employment subject to social security contributions). The indicator for the educational outcome is the entitlements in later pension income. This is innovative and appropriate since pension entitlements in a contribution-based system highly depend on wages and employment biographies. For my multivariate modelling, I used unique data called BASiD (biographical data of selected social insurance agencies in Germany). The longitudinal data includes biographies of 568.468 persons e.g. with day-to-day information on pension entitlements.

Results show that younger cohorts continuously lose pension entitlements. Even though, they were generally lower educated, older cohorts benefited of the economic miracle after World War II. In contrast, younger cohorts experienced longer periods of unemployment gaining fewer entitlements for later pension income. Women gained the most profits of human capital investments. However, part-time work and periods of home caring limit their return on investment already during career start. Later birth cohorts of high skilled worker had shorter periods of unemployment but still lower pension entitlements: This result strongly supports the theory of queuing for higher positions in growing labour competition.