Labour market mobility, knowledge diffusion, and firm innovation: empirical evidence from Chinese industrial enterprise

Economic growth thrives on innovation, which is a byproduct of efficient labour utilisation. Labour market mobility, fostering knowledge exchange, is crucial for inducing innovation in firms through labour. However, prior studies on this dynamic, mostly limited to developed economies, provide inconsistent conclusions. China, a crucial player in the developing world, has been insufficiently investigated. To address this gap, our study investigates this relationship using China as a model, providing insights valuable to other developing nations. The results indicate that increased labour mobility significantly promotes technological innovation in local firms, especially in areas that emphasize design and high-quality innovation. Importantly, the influence of labour mobility on innovation varies across administrative divisions, such as provinces, cities, and counties, leading to diverse effects on firm-level innovation. Furthermore, the impact of labour mobility is particularly significant in privately-owned enterprises and firms situated in the eastern region. The crucial role of knowledge diffusion, serving as a mediator through which labour mobility enhances firm innovation, is emphasized, highlighting its significance. In conclusion, this study effectively establishes how labour market mobility shapes firm innovation, offering practical policy directions for China's urban talent strategies and innovation enhancement.