Digital Divide and Labor Reallocation: Analysis of Dynamic Effects and Efficiency Improvement

Abstract

The digital economy has played a crucial role in enhancing productivity, fostering innovation, and driving consumption upgrades. However, due to objective factors such as geographical conditions, resource allocation, and social disparities, different population groups are unable to equally benefit from digital development dividends, leading to the emergence of the digital divide. Moreover, as China’s demographic dividend gradually diminishes in recent years, optimizing the reallocation of limited labor resources has become a necessary measure to reduce total factor productivity losses. Few studies have focused on the coexistence of the digital divide and labor reallocation optimization within China’s high-quality development process, making it particularly meaningful to improve labor allocation efficiency within the context of the digital divide.

This study first constructs a balanced panel dataset at the prefecture-level city level in China to separately measure the Digital Access Divide Index and the Digital Application Divide Index. A fixed-effects regression model is employed to empirically examine the impact of the digital divide on labor misallocation, its underlying mechanisms, and heterogeneity. Building on this analysis, we incorporate year dummy variables and time-lagged terms to investigate the dynamic effects of both types of digital divides on labor misallocation, clarifying the types of digital divides China’s labor reallocation faces both currently and in the future. Furthermore, we introduce the digital divide into a spatial Durbin model in the form of a spatial matrix to identify the effectiveness of policy-driven credit subsidies, government land transfers, and household registration thresholds in improving labor reallocation under the digital divide framework. The results indicate that both the digital access divide and the digital application divide distort labor reallocation, primarily because the digital divide reduces labor skill premiums and disrupts skill structure upgrading, thereby exacerbating labor misallocation.

Additionally, the digital access divide significantly intensifies labor misallocation in regions with excessive capital allocation, while the digital application divide amplifies labor misallocation in environmentally regulated regions. In recent years, the short-term distortionary effect of the digital access divide on labor misallocation has gradually weakened, whereas the influence of the digital access divide on labor misallocation has gradually weakened, whereas the influence of the digital application divide has exhibited a long-term and increasingly strengthening trend. Currently, labor misallocation primarily stems from the digital access divide, but in the future, the digital application divide will progressively intensify labor reallocation distortions. Policy measures such as credit subsidies and household registration threshold reforms have played positive roles in optimizing labor reallocation, whereas land finance and environmental regulation policies may exacerbate resource allocation distortion risks in adjacent areas due to regional spillover effects.

Compared to existing literature, this study makes the following marginal contributions: First, it separately measures the digital divide at the prefecture level, categorizing it into digital access divide and digital application divide indices. It also integrates year dummy variables and lagged terms into the regression framework, enabling more precise identification of both the average and dynamic effects of the digital divide on labor reallocation and facilitating temporal characteristic comparisons. Second, this study is the first to quantify the digital divide using a spatial weight matrix and incorporate it into a spatial Durbin model, thereby directly identifying pathways for improving labor allocation efficiency within the digital divide context.

The findings not only provide empirical evidence for policymakers to formulate strategies aimed at narrowing the digital divide and optimizing labor allocation, but also indicate that labor reallocation optimization cannot rely solely on comprehensive promoting digital economic development. Only by fostering balanced development of the digital economy can the inclusive benefits of digitalization be maximized.