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While previous studies examine innovation policies’ direct effects on economic outcomes, the mechanisms through which these policies reshape employment structures remain understudied, particularly in developing economies with significant regional variations. This research investigates how Innovation and Entrepreneurship Demonstration Base (IEDB) policy influences employment structure optimization in China, focusing on education investment and innovation capacity as key transmission channels. Using panel data from 283 Chinese cities (2000–2022), we employ a difference-in-differences approach combined with mediation analysis to examine policy effects. Our findings reveal that IEDB policy significantly enhances employment structure optimization, with education investment and innovation capacity serving as crucial mediating channels. Regional heterogeneity analysis demonstrates stronger policy effectiveness in western regions and the Yangtze River Economic Belt, highlighting the role of development stages and geographical advantages in policy outcomes. These findings advance understanding of innovation policy effectiveness by identifying specific transmission mechanisms and regional variations, providing practical guidance for policymakers seeking to optimize employment structure through targeted innovation initiatives. • IEDB policy significantly promotes employment structure optimization through both direct institutional changes and indirect mechanisms. • Education investment mediates policy impact by enhancing human capital development, accounting for 7.65% of the total policy effect. • Innovation capacity serves as a crucial transmission channel, contributing 15.05% of total policy impact through technological advancement. • Western regions show stronger policy responses, suggesting IEDB initiatives particularly benefit areas with greater transformation potential. • The Yangtze River Economic Belt exhibits enhanced policy effectiveness, indicating geographical advantages amplify employment optimization.
Wu et al. (Sat,) studied this question.