Job creation or disruption? Unraveling the effects of smart city construction on corporate employment in China

Abstract

Previous literature on smart city construction (SCC) has mainly focused on its economic and environmental benefits while largely overlooking its potential adverse consequences, especially on microeconomic units. Using China's SCC pilots as a quasi-natural experiment, this study examines the impact of SCC on corporate hiring decisions and finds that SCC adversely impacts corporate employment. The mechanism analysis suggests that SCC affects corporate employment through factor substitution rather than job creation by promoting digital capitalization and capital and technological factor substitution. Further analyses indicate that SCC primarily reduces the number of low-skilled and non-production employees and has a stronger impact on local private, old, and industrial firms. We also find evidence of labor reallocation effects of SCC. Overall, the results highlight the trade-off between promoting SCC and mitigating employment challenges and the role of data as a new production factor in the digital economy era, providing important policy implications for stakeholders.