Can smart cities reduce labor misallocation? Evidence from China

The marketization of factors in China lags behind that of products, and this lag is directly manifested as insufficient effective supply of labor, rising labor costs of enterprises, and serious distortion of labor resource allocation, which to a great extent restricts the economic transformation from "quantity" to the "quality" growth. The labor allocation effect of smart cities plays an important role in promoting the transformation to high-quality development in China, but there is still a lack of empirical research testing this effect. Based on panel data of 151 cities at the prefecture level and above for the period 2006–2018, this paper uses a DID model to evaluate the impact of smart city pilot projects on labor misallocation. The results show that, first, smart cities can significantly reduce labor misallocation, and this finding holds under a series of robustness tests. Second, smart cities can reduce labor misallocation through the formation of industrial agglomeration and the upgrading of the industrial structure. Third, the effect of smart cities was more significant in central and eastern cities and large-scale cities than in western cities and small and medium-scale cities. Fourth, smart cities have a significant spatial spillover effect on the reduction of labor misallocation.