Does artificial intelligence impact employment in the medium-skilled labor force? Evidence from China’s National AI Innovation and Application Pilot Zones

Rapid artificial intelligence diffusion in China, shaped by government initiatives, is reshaping labor markets and raising questions about medium-skilled employment. Using a 2015–2023 panel of 287 Chinese prefecture-level cities, we examine how policy-induced artificial intelligence diffusion affects medium-skilled employment. Identification exploits the staggered establishment of China’s National AI Innovation and Application Pilot Zones as a quasi-natural experiment in a staggered difference-in-differences design. The estimated policy effect is negative and statistically significant for treated cities. This result remains robust across multiple robustness checks and estimators that accommodate heterogeneous treatment effects. Dynamic estimates show persistent but non-monotonic negative effects and significant differences across treatment cohorts. Following policy implementation, education expenditure and industrial upgrading increase, but neither coincides with improved medium-skilled employment over the same period. A stronger pre-policy industrial base is associated with a less negative policy effect, whereas greater pre-policy public attention to AI is associated with a more negative effect.