The employment effects of digital infrastructure: firm-level evidence from the ‘Broadband China’ strategy

Abstract

ABSTRACT This paper addresses the impact of digital infrastructure construction within cities on the labour market in firms. Using the ‘Broadband China’ policy as a quasi-natural experiment, and employing panel data of companies listed on the Chinese stock market from 2011 to 2018, we apply a difference in differences (DID) and propensity score matching (PSM)-DID model, and a series of robustness tests to analyse labour demand amongst firms. We find a strong and positive link between digital infrastructure construction and firm labour demand, which is driven by the reduction in management costs and financial constraints. In addition, the positive effect of digital infrastructure on firm labour demand is concentrated in firms in China’ s eastern and central regions, state-owned enterprises (SOEs), low competitiveness firms, substantial industrial investment intensity firms, industrial high value-added firms and non-information and communications technology(ICT) industry firms. Meanwhile, digital infrastructure shows heterogeneous effects on different labour demands within enterprises, with the most adverse effect on the demand for low-educated labour. Our findings provide a solution to the problem of ‘stable employment’ based on the perspective of digital economy development. They also provide policy inspiration for governments that are aiming to effectively implement China’s ‘Powerful Digital Nation’ strategy.