“We analysed to what extent international students strengthen the skilled labour workforce in the country, especially after completing their studies”

A new study by the German Economic Institute (IW), commissioned by the German Academic Exchange Service (DAAD), is the first to comprehensively analyse the economic impact of international students from the start of their studies up to their retirement. The study indicates that the approximately 80,000 international students who began their studies with the intention of graduating in 2022 will pay almost 15.5 billion euros more in taxes and social contributions over the course of their lives than they receive in benefits from the German state. According to the IW, investing in international students pays off for Germany after only a few years: If 40 per cent of a cohort stay in the country after graduation, their taxes and social contributions cover the costs of higher education after just three years. In the following interview, study author Dr. Wido Geis-Thöne explains how the findings fit in with previous national and international research on this topic, as well as which contributions policymakers, universities and companies can make to better integrate international students into the labour market and retain them as skilled workers in Germany.

Why do you think it is important to take a closer look at the economic significance of international students?

The German labour market is currently at a turning point. For the first time in the history of the Federal Republic of Germany, there will be significantly more people leaving the labour market due to retirement than there will be young people joining the workforce over an extended period of time. Due to this, a shortage of skilled labour is possible, which impairs the performance of the German economy and could jeopardise the prosperity of the population. This risk can only be mitigated by attracting additional qualified workers to the German labour market. For this, immigration is the most effective mechanism. However, the amount of people that can fill a position as a skilled worker with their qualifications and immigrate to Germany is limited globally. Because of this, the education of young people from abroad at German universities and other education institutions to secure skilled labour is becoming increasingly important. Additionally, the long-term employment prospects are already very good because of the demographic change.

The demographic change also means that growth momentum in Germany is likely to weaken, and the state will have to provide pension and care benefits for an increasing number of older people with fewer taxes and social contributions from the labour force. On top of that, it is necessary to strengthen the growth momentum and the public budgets in order to finance important infrastructure investments in the long term. Against this backdrop, it is becoming increasingly central for political decision-making to demonstrate the investment character and the long-term positive economic effects of education expenditures. This is especially true for international students, as the German state does not hold the responsibility for their education per se.

Where do you situate your findings into the existing national and international research on this topic?

A big percentage of the existing research on the economic effects of international students comes from the Anglo-Saxon world. There, the main focus is on how international students strengthen the economic performance of the countries on the demand side through tuition fees and spending on private consumption. Their potential for the labour markets is only mentioned in passing, if at all. On the other hand, we mainly examine how international students can strengthen the skilled labour base especially after their graduation and thus contribute to a more positive macroeconomic development and higher revenues for the state.

To our knowledge, there has only been one major study on this topic at national level to date, conducted by Prognos AG in 2013, in which they compare the economic effects of international students in Germany and various other countries. This study and others from different European countries already address the significance of international students for the labour market. In our study, we focus on fiscal effects in detail, as paying into the statutory pension insurance scheme, for instance, results in a later entitlement to a pension payment or a refund of employee contributions in the event of an earlier departure.

Which contributions can politics, universities and companies provide to better integrate international students into the labour market and keep them in Germany as skilled workers?

First of all, it is important that all involved actors are aware of the fact that the education of international students not only, but in particular, serves to secure skilled labour, and that they keep that in mind for all activities in the relevant areas. This includes addressing people abroad, who are (potentially) interested in studying in Germany. It would be best if companies could also get involved in this and specifically promote the possibility of a long-term stay in Germany. In a second step, universities as well as companies should promote the integration of international students into qualified employment, particularly through internships, student traineeships and similar programmes. Accompanying language support and connecting with other local students is also important. And thirdly, it is beneficial to establish and secure sustainable support structures at the universities, as connecting all relevant actors works better the more trust and social capital exists locally.