Does Informatization Improve Labor Investment Efficiency? Evidence from China’s IT and Industrial Integration Pilot Zones

This study investigates the effect of government-led informatization on labor investment efficiency. We leverage the staggered rollout of national Pilot Zones for the Integration of Informatization and Industrialization (PZII) between 2009 and 2011 as an exogenous shock to industrial digitalization. Our results show that policy-driven informatization significantly improves firms’ labor investment efficiency, with the effect being particularly strong among firms that overinvest in labor. Mechanism analyses suggest that the PZII initiative shapes a conducive urban environment for business development, thereby fostering better information governance, greater technological innovation, and complementary capital investment at the firm level. The effects are stronger for firms located in cities with a more skilled labor force or operating in industries with fierce competition. We further find that this initiative upgrades firms’ human capital structure and that the resulting efficiency gains translate into superior resource allocation, increased competitiveness, and higher firm valuation. Collectively, our findings illuminate how digitally oriented industrial policies can optimize labor investment decisions and advance long-term economic objectives.