Green returns of labor income and human capital: Empirical evidence of the environmental behavior of households in developing countries

Abstract

An important part of the environmental contamination comes from the daily practices of the households, which has been partially ignored in the recent empirical literature. The objective of this research is to examine the green returns of labor income and human capital in a developing country, Ecuador. We use data from the National Institute of Statistics and Census (NISC) during 2010–2016 and panel data econometrics techniques. Our results show that labor income and human capital plays a relevant role in the environmental behavior of households in this country: both variables have a positive effect on the friendly environmental behavior of households. In addition, we found that the cantons¹ specialized in manufacturing have a poor environmental performance, while the cantons specializing in services do not have a clear pattern. We also don't find significant differences in the environmental behavior associated with the composition of the ethnic groups of each canton. Finally, natural geographic regions generate differences in the environmental behavior of households. One possible implication derived from this research is that those responsible for environmental policy can mitigate pollution by promoting educational programs with environmental content and encouraging improvements in the behavior of households using tax mechanisms.

Introduction

Environmental degradation is a problem of broad interest in society. Most of the debate has focused on the harmful effects of polluting emissions associated with manufacturing activity (Al-Ayouty et al., 2017; Wang et al., 2018). It is generally known that environmental degradation is not only the result of manufacturing activity, but also of the daily behavior of individuals within households. To control pollution, environmental conservation policies must have a comprehensive approach that includes all economic agents. Changes in household consumption patterns are a clear example of this. For example, according to the data from the National Survey on Employment, Unemployment and Underemployment (NSEUU, 2017), the environmental behavior of Ecuadorian households is deficient. 57% of the inhabitants of this country do not recycling waste, 64% do not practice saving water and >70% do not recycling properly of used batteries. Consequently, it is possible that the environmental practices of households are contributing to the degradation of the environment. Despite the importance of the practices of households in achieving a better environmental quality, the empirical literature on the subject is limited.

There are several economic theories that have focused interest in the analysis of environmental behavior associated with social and demographic variables (Stern, 2000). One of them is the social class hypothesis development by Van Liere and Dunlap (1980), which mentions that social class (measured by education, income and occupational prestige) and environmental concern are positively related. Individuals with a high level of education and income, once they have managed to satisfy basic needs, can focus on improving aspects to improve the quality of life, such as environmental quality. This approach is based on the hierarchy theory of Maslow (1970), who mentions that environmental concern is a luxury good that can be satisfied after covering basic material needs and not in the initial stages of development. One way to analyze pollution comprehensively is through the inclusion of social, economic and demographic variables (Franzen, 2003) to reach a more realistic understanding of the causes of this problem. The environmental practices of households are associated with the lifestyle of people and their relationship with the immediate environment.

In this context, the objective of this research is to estimate the green returns of labor income and human capital using concrete examples of the environmental behavior of Ecuadorian households. Both relations are estimated separately due to the endogeneity between the labor income and the average human capital of the households. The research has coverage for 158 cantons during 2010–2016, the limitation of data led to omit the remaining 63 cantons. We use panel data econometrics techniques, which allow us to control unobserved heterogeneity and obtain more consistent estimators. Our hypothesis is that households with higher labor income and greater human capital endowments have better environmental practices. The environmental practices of households are measured by waste batteries, use of saving light bulbs, waste recycling, saving water, and un environmental behavior index (EBI), which combines the previous variables in a single index. Our results show that the environmental behavior of households responds to changes in labor income and human capital. This result is consistent with the findings of similar investigations (Torras and Boyce, 1998). We also found robust empirical evidence suggesting that households in the cantons with greater human capital have a better environmental performance. This result is maintained after the inclusion of control variables that capture the productive structure, the geographical differences and ethnic diversity of this country. Households in the cantons that are more specialized in manufacturing have a poor environmental performance (recharging batteries, using energy saving lamps, recycling garbage, and saving water). While the effect of specialization in services on the environmental behavior of households does not have a clear pattern. Aklin et al. (2013) carry out a similar research in Brazil and finds partially different results, where he finds that human capital has a significant effect on the practices of the households in that country. The implications of public policy derived from this research are that the government should improve environmental education in educational establishments and increase campaigns that promote environmental care. Using the tax policy on labor income can also improve the environmental practices of households. This research contributes to the literature in the formalization of social and demographic variables to explain the environmental behavior of households in developing countries.

This article is structured in four additional sections to the introduction. The second section contains the review of previous literature. The third section describes the data and presents the econometric strategy used in the estimates. The fourth section discusses the results found with the empirical evidence. Finally, the fifth section contains the conclusions obtained and the policy implications derived from this research.