At the University of Chicago, I was taught human capital theory by several future Nobel Laureates and Clark Medalists (Becker, Heckman, Murphy) and by a man who would have won a Nobel Prize. None of these scholars ever mentioned the link between human capital and environmental economics.
In this blog post, I'd like to highlight an exciting research agenda that investigates how human capital helps to reduce pollution externalities and then I will turn the discussion around and discuss how environmental externalities affect human capital accumulation.
Human capital is the investment in skills and problem solving. A flexible person can solve a wide range of problems and such capacity helps a person thrive in the modern capitalist economy where employment sectors are constantly being hit by new shocks and face shifting competition and market conditions.
A few years ago, Nick Bloom and co-authors wrote a paper using data from UK manufacturing plants that those plants whose managers were of higher quality were more energy efficient. I interpreted their findings to mean that more skilled managers are less likely to leave $20 bills on the ground and to achieve the efficient allocation of resources. These guys are able to read quickly and keep up on trends and to talk to a large number of experts to keep up on cutting edge energy savings technology. They are likely to be patient and willing to make long run investments that require upfront costs but yield long term energy efficiency gains. Such skilled managers are less likely to suffer from what Frank Wolak terms the "cost of action" problem.
This discussion is relevant for an article in the NY Times today about the pollution created by the U.S military in Afghanistan. Our troops have been burning garbage there in open fire pits that have exposed our troops to high levels of toxic emissions.
Camp Leather Neck spent $11.5 million on incinerators, but, during several inspections in 2013, the vast majority of its waste continued to be thrown into the two-story-high flames of the burn pit on the edge of the base because there was no contractor to run the incinerators. “As a result,” a previous report said, “possible long-term health risks to the camp’s personnel continue.”The contractors had the human capital and skills to run the incineration equipment that would have reduced toxic exposure by some amount but since these guys were not around the troops were exposed to extra pollution. This is a simple example of how human capital protects us from pollution externalities. Another example is well trained nuclear engineers. The risk of another Chernobyl from nuclear power shrinks sharply if we have well trained nuclear engineers.
Now let's turn the argument around; how does pollution affect human capital? Start with Jim Heckman's dynamic complementarity model of skill development. A child who is sickly learns little as a young student and may never catch up. Janet Currie and co-authors have extensively examined how child health is affected by pollution. A healthy child is more likely to successfully launch to grow up and achieve her full potential. Similar work is now being done in developing countries. Authors such as Paulina Oliva are conducting important research at the intersection of labor and environmental economics.