Subsidizing Higher Education for Injured Workers in Denmark
Introduction
While the Danish government provides higher education free of charge, some professions (and related vocational degrees) do not have to complete high school before pursuing related higher education degrees, while other professions (and related vocational degrees) are required to complete additional schooling before pursuing higher education. Humlum, Munch, and Plato (forthcoming) exploits this variation in whether workers’ initial vocational degrees grant direct entry into specific post-secondary programs to study the impact of higher education for workers who suffer physical injuries in workplace accidents in Denmark. Using administrative data from 1995-2017 and a difference-in-differences design, the paper analyzes workers’ reskilling decisions and the causal effects of higher education access on employment and earnings after injuries that cause permanent loss of earning capacity. The paper uses these results to estimate the MVPF for subsidizing higher education for injured workers.
Pays for Itself
Net Cost
The paper calculates net government cost by combining education expenses with fiscal externalities. Direct education expenses include tuition costs and educational transfers, totaling $70,297 per retrained worker. However, these costs are more than offset by fiscal externalities: workers who complete higher education pay $235,105 more in taxes and receive $130,588 less in transfers over their lifetimes as they transition from disability benefits to high-income employment. In total, the net government cost is -$295,395 per retrained worker.
Willingness to Pay
The paper calculates willingness to pay as the present discounted value of workers’ changes in income and transfers, starting from an average age of 32 to a retirement age of 65. Workers who complete higher education earn $269,470 more in after-tax earnings over their remaining working years, as they transition from physically demanding jobs to cognitive occupations earning 25% more than before their injuries. While they lose $130,588 in disability benefits and other transfer payments they would have received without re-skilling, they gain $36,535 in education transfers while in school. Combining these components, the total willingness to pay is $175,417 per retrained worker.
MVPF Summary
The MVPF is infinite because the net cost to the government is negative—for each retrained worker, the government experiences increased tax revenue and reduced transfer payments that more than offset education costs.
References
Humlum, Anders, Jakob Roland Munch, and Pernille Plato. “Changing Tracks: Human Capital Investment after Loss of Ability.” American Economic Review (Forthcoming). https://www.aeaweb.org/articles?id=10.1257/aer.20231067&&from=f
Policy Features
- Category
- Social Insurance
- Sub-Category
- Job Re-Entry
- Beneficiary Type(s)
- Adults
- Average Age
- 32
- Average Income
- 54,000
- Country of Implementation
- Denmark
- Year of Implementation
- 1995
- Empirical Method
- Difference in Differences
- Research Type
- Primary
- Peer Reviewed
- Yes
- MVPF Publication Link
- www.aeaweb.org/articles?id=10.1257/aer.20231067&&from=f