Does innovative city construction boost urban employment? Evidence from China

The impact of innovation-driven policies on employment in developing countries deserves due attention. This study systematically assesses the impact of innovative city pilot (ICP) policy on urban employment in China. Theoretical analyses suggest that the total effects of innovation-driven policies on employment depend on the relative magnitude of the job-creation effects versus the job-substitution effects. We construct time-varying Differences-in-Differences (DID) models using data on 280 Chinese cities from 2003 to 2017. It is found that total employment of ICP cities was increased by about 10.22% after the policy shock. Namely, we confirm that ICP policy’s job-creation effects are larger than the job-substitution effects. These results remain robust to the exclusion of heterogeneous treatment effects, the effects of other relevant policies, selection bias issues, and other unobservable random factors. Furthermore, impact mechanisms tests reveal that the science expenditure channel and industrial structure upgrading channel partially transmitted the ICP policy’s effects on urban employment. Moreover, in the heterogeneity analysis section, we find that the employment dividend of ICP policy varies significantly across regions and industries. Finally, we came up with some policy implications on how to mitigate the regional and sectoral inequalities of ICP policy’s employment effects.