Greening Human Capital and Business Cycle: The Role of Educational Policies

Higher education institutions play a central role in shaping labor skills and green culture essential in the future low-carbon economy. This paper examines the impact of green education policies in the higher education sector on the business cycle and compares them to standard incentives to encourage green production at the firm level. For our purpose, we set up a Dynamic Stochastic General Equilibrium model extended to account for the endogenous selection of green and traditional human capital and heterogeneous households that differ in their ability to access labor markets and with different availabilities of human capital. We find that both academic and firm subsidy measures enable the greening of human capital. However, a green education stimulus is essential to increase the quality of green education and allow sustainable development in the long run. In contrast, firm-level green subsidies have a larger impact on short-term low-carbon productivity, as they mainly affect hiring and investment decisions.