Does Market Unification Promote Employment Growth? Evidence from China’s Unified National Market Initiative

Abstract

Employment growth is a central objective of economic policy, yet the role of internal market integration in shaping labor demand remains understudied. This paper examines the impact of the Unified National Market initiative on firm-level employment, utilizing a panel of Chinese listed companies from 2011 to 2023. Our estimates reveal a robust positive relationship between market integration and labor hiring. This impact is heterogeneous, with stronger responses observed in non-state-owned enterprises, labor-intensive sectors, and the more developed eastern region. We provide evidence for two distinct mechanisms: a production scale effect resulting from expanded market access, and a credit channel driven by the relaxation of financing constraints. Additionally, we document that market integration improves the skill composition of employment and increases the labor share of income. These results underscore the importance of reducing inter-regional barriers to achieve employment growth.

1. Introduction

Employment constitutes the most fundamental issue of livelihood, directly affecting individual well-being and serving as a cornerstone of sustainable economic and social development, as well as long-term national stability. Yet China’s employment landscape remains challenging. Amid insufficient effective demand, intensified supply-side shocks, and weakening social expectations, urban labor market pressures have continued to mount. In particular, the structural contradiction characterized by the coexistence of labor shortages and high unemployment has become increasingly pronounced [1]. Moreover, data from the Ministry of Education indicate that the scale of university graduates reached 11.79 million in 2024, representing an increase of 210,000 relative to the previous year. The effective absorption of such a large cohort of new labor market entrants poses an additional and substantial challenge. In response, the Third Plenary Session of the 20th Central Committee of the Communist Party of China emphasized the need to refine employment-first policies and establish sound long-term mechanisms to promote high-quality and full employment. This policy orientation was further reinforced in the 2025 Government Work Report, which called for better coordination of fiscal resources, increased policy support, and concerted efforts to achieve full employment while enhancing its quality. Against this backdrop, identifying effective pathways to promote full employment and providing a rigorous, evidence-based foundation for addressing this critical livelihood issue is particularly important.

Achieving high-quality, full employment depends critically on the support of a high-level socialist market economy. A cornerstone of this system is the development of a high-standard market infrastructure, specifically the establishment of an efficient, standardized, competitive, and fully open Unified National Market [2]. Recent policy directives, notably the report from the 20th National Congress of the Communist Party of China and the Third Plenary Session of the 20th Central Committee, have underscored the imperative of deepening factor market reforms and expediting market unification. Beyond dismantling local protectionism and reducing market segmentation, the construction of a Unified National Market is essential for optimizing factor allocation, streamlining entry and exit mechanisms, and stimulating aggregate market vitality. However, while existing literature has examined the macroeconomic effects of market unification, its microeconomic implications for firm-level employment remain understudied, particularly in the context of China’s dual objectives of employment stabilization and high-quality development. Therefore, evaluating the impact of Unified National Market construction on corporate labor demand is essential for understanding the micro-foundations of the socialist market economic system and achieving labor market stability.

The extant literature on the construction of a Unified National Market generally coalesces around three principal dimensions. One primary stream of research has sought to rigorously conceptualize and quantify the Unified National Market [3]. Theoretically, the Unified National Market is defined as an integrated system predicated on perfect competition and the social division of labor. It aims to maximize resource allocation efficiency and strengthen market competitiveness by dismantling barriers to the cross-regional and cross-industry mobility of goods and factors [4]. Empirically, the prevailing methodological approaches for assessing the level of market unification involve the use of market segmentation indices and the development of comprehensive indicator evaluation systems [5]. Another body of work has focused on mechanisms to accelerate the unification process. This strand of literature explores strategies to eliminate local protectionism and mitigate market segmentation, investigating viable pathways for market integration through reforms in fiscal and taxation systems, the optimization of government functions, and the leveraging of the digital economy [6]. The remaining dimension examines the economic consequences of constructing a Unified National Market. Related studies indicate that the development of a Unified National Market fosters entrepreneurship [7], enhances bank credit issuance [8], and mitigates carbon emissions [9].

Research on the determinants of corporate labor employment constitutes another stream of literature relevant to this paper. Existing studies primarily discuss this issue from the perspectives of distinct institutional actors: the government, enterprises, and banks. From the government perspective, a wide array of policy interventions has been shown to exert a significant influence on the scale of corporate employment, including local government debt [10], environmental protection [11], infrastructure construction [12], tax system reforms [13], and employment services [14]. From the enterprise perspective, factors such as industrial robots [15], the digital economy [16], and foreign direct investment [17] play significant roles in shaping corporate labor employment. Within the banking sector, the availability of commercial credit exerts a substantial influence on corporate hiring practices [18]. Furthermore, the development of the rule of law is a crucial determinant of corporate labor employment, as evidenced by the implementation of the Law on the Promotion of Small and Medium-sized Enterprises [19] and judicial reforms regarding bankruptcy [20].

Despite a rich body of research examining the Unified National Market and the factors governing corporate labor decisions, there is a paucity of evidence connecting market unification efforts directly to firm-level employment outcomes. To bridge this disconnect, this study leverages micro-level firm panel data covering the years 2011 through 2023. Our analysis systematically investigates how the construction of a Unified National Market influences labor employment size, identifying the specific transmission mechanisms through which these policy shocks affect corporate hiring behavior.

This paper contributes to the literature in three distinct ways. To begin, we fill the gap between macro-level market integration policies and micro-level labor outcomes. While existing studies focus on general economic growth, we isolate the specific effect of the Unified National Market on corporate employment levels, thereby expanding the framework for understanding determinants of labor demand. In the subsequent step, we identify the precise transmission channels driving this relationship. We provide empirical evidence that market unification boosts employment through two key mechanisms: the expansion of production scale and the alleviation of financing constraints. Furthermore, we extend the analysis to examine labor structure and income share, offering a multidimensional view of the policy’s distributional effects. Finally, our findings offer concrete policy implications. By establishing a causal link between market unification and employment growth, we provide a theoretical basis for utilizing market integration as a tool for current ‘employment stabilization’ initiatives.

2. Theoretical Analysis and Research Hypotheses

Building on the micro-foundations of firm hiring decisions, we integrate the Unified National Market into a theoretical model of labor demand. Our analysis posits that market unification shapes corporate employment via two distinct channels: a production scale effect, where market expansion drives output and labor needs, and a financing constraint effect, where reduced friction improves capital access. We formalize these theoretical insights into testable hypotheses.

Production scale is a fundamental determinant of corporate labor demand. As output expands, firms increase hiring to meet capacity requirements, thereby raising aggregate employment levels [21]. Drawing on institutional transaction cost theory, we posit that prospective entrants weigh entry costs against expected returns; stringent regulatory barriers raise the cost of entry, dampen expected profitability, and deter market participation. By dismantling these barriers and reducing impediments to factor mobility, the Unified National Market facilitates the expansion of production scale. This expansion, in turn, shifts the firm’s labor demand curve outward. We identify three specific channels through which this mechanism operates:

First, the establishment of a Unified National Market expands corporate investment opportunities by standardizing market regulations, streamlining administrative approvals, and dismantling barriers to entry. Such an increase in effective investment bolsters firms’ operational capabilities and fosters new growth drivers. This, in turn, facilitates the expansion of production scale, thereby generating a higher demand for labor [22].

Then, the construction of a Unified National Market fosters a business environment conducive to fair competition by eliminating local protectionism and market segmentation. This competitive pressure spurs firms to increase R&D expenditures in pursuit of a strategic advantage. The resulting gain in market share catalyzes an expansion in production capacity, ultimately driving up labor demand [23].

Lastly, the Unified National Market mitigates inter-regional friction, optimizing the allocation of labor, capital, and technology and raising firm-level productivity [24]. This productivity shock increases labor demand by incentivizing autonomous scale expansion and by lowering output prices. The latter generates an income effect that bolsters market demand, further encouraging firms to increase production [2].

In sum, the Unified National Market stimulates labor demand by inducing firm-level scale expansion, thereby exerting a positive net effect on aggregate employment.

Financing constraints constitute a second critical determinant of firm-level employment. Given the liquidity mismatch between operating cash inflow and wage obligation and the non-mortgage of human capital, firms often require external credit to cover labor costs [25]. However, persistent credit market frictions restrict access to timely capital. Consequently, binding financing constraints induce firms to contract their workforce. Conversely, the alleviation of these constraints relaxes the working capital bottleneck, enabling firms to expand employment by bridging the gap between labor costs and cash flow realization [26].

The construction of a Unified National Market promotes labor employment expansion by relaxing firms’ financing constraints. This effect operates through three channels. First, market integration eliminates the segmentation that restricts firms to local financial resources. Banks prefer geographically proximate borrowers to reduce transaction costs [27]. However, a unified market dismantles this regional isolation, extending access to banks, investment institutions, and capital markets, thus broadening credit supply. Second, integration reduces the information asymmetry that constrains financing [28]. By enhancing the transparency of market information and public disclosure, a unified market lowers the search costs associated with verifying firms’ financial health and competitiveness, thereby facilitating capital access. Third, the Unified National Market optimizes the business environment, improving investor expectations [29]. By reducing barriers to entry and fostering fair competition, integration enhances the efficiency of capital allocation and stimulates investment, further easing financial constraints.

In summary, the establishment of a Unified National Market mitigates the high costs and frictions of financing, thereby enhancing firms’ capacity to absorb labor costs and expanding their employment levels. Based on this analysis, we propose the following hypotheses:

Hypothesis 1.

The establishment of a Unified National Market positively affects firms’ labor employment levels.

Hypothesis 2.

The Unified National Market promotes labor employment expansion primarily through two channels: the expansion of production scale and the alleviation of financing constraints.

3. Materials and Methods

3.1. Sample Selection and Data Sources

Our sample consists of Chinese A-share listed companies from 2011 to 2023. A caveat regarding our sample selection warrants mention: our analysis focuses predominantly on listed firms. We recognize that non-listed entities, especially Small and Medium-sized Enterprises (SMEs), are instrumental to China’s employment landscape. However, we restrict our analysis to listed firms based on the following strategic rationales. First, given that the development of a unified national market is a continuous policy endeavor, the temporal currency of data is paramount. Unlike databases for non-listed firms, which are constrained by significant reporting lags and data truncation in recent years, listed firm data exhibits superior timeliness and longitudinal continuity. This advantage enables us to extend the observation window to more recent periods, thereby capturing the dynamic effects of the policy with greater precision. Second, the mandatory disclosure requirements and external auditing standards imposed on listed firms guarantee the granularity and reliability of the financial metrics required to verify our proposed mechanisms, such as financing constraints. Third, functioning as industry incumbents, listed firms act as effective indicators of the macroeconomic environment. Their sensitivity to market integration offers robust evidence of the policy’s micro-foundations. Although this approach may omit the idiosyncrasies of micro-enterprises, it yields the most credible and up-to-date evidence available for evaluating firm-level responses to market unification.

Firm-level data are drawn from the CSMAR and WIND databases, while city-level data are obtained from the China City Statistical Yearbook. To ensure data quality and mitigate the influence of outliers, we apply the following screening procedures: (1) we exclude firms in the financial sector and those designated as ST or *ST; (2) we remove observations with missing values for key variables; and (3) we winsorize all continuous variables at the 1st and 99th percentiles. The final sample comprises 24,612 firm-year observations.

3.2. Variable Definitions

3.2.1. Dependent Variable

The dependent variable in this study is the corporate labor hiring scale (Labor), measured as the natural logarithm of the total number of employees [19]. Specifically, this indicator represents the total number of on-the-job employees disclosed in the companies’ annual financial reports at the end of the fiscal year, which encompasses the entire workforce employed by the firm.

3.2.2. Explanatory Variable

The primary explanatory variable is the level of development of the unified national market, denoted as (Mint). Following related research [5], we first construct a city-level market segmentation index (segm) using the relative price approach, utilizing price indices across eight major categories of consumer goods. We then derive the index for the unified national market development level by calculating the natural logarithm of the arithmetic square root of the reciprocal of the market segmentation index, as specified in Equation (1). By construction, a higher value of this indicator corresponds to a greater degree of market integration, while a lower value indicates less development in the unified national market.

$$\mathrm{M}{\mathrm{int}}_{\mathrm{it}}=\mathrm{Ln}\left(\sqrt{{\displaystyle \frac{1}{\mathrm{segm}({\mathrm{q}}_{\mathrm{it}})}}}\right)$$

(1)

3.2.3. Control Variables

To isolate the effect of market integration, we control for a set of firm- and city-level characteristics that may simultaneously influence firm outcomes. The firm-level controls include: firm size (Size), measured as the natural logarithm of total assets; leverage (Lev), defined as the ratio of total liabilities to total assets; return on assets (Roa), defined as the ratio of net profit to average total assets; Tobin’s Q (TobinQ), proxied by the ratio of total market value to total assets; cash flow (Cash), measured as the ratio of net operating cash flow to total assets; asset tangibility (Fixed), defined as the ratio of fixed assets to total assets; and ownership concentration (Top1), measured as the percentage of shares held by the largest shareholder. At the city level, we control for: the level of economic development (Gdp), measured as the natural logarithm of regional GDP; financial development (Finance), defined as the ratio of the year-end balance of deposits and loans of financial institutions to regional GDP; and industrial structure (Second), measured as the value-added of the secondary industry as a share of regional GDP.

3.3. Model Specification

To examine the impact of unified national market construction on corporate labor hiring scale, the following baseline regression model is constructed:

$${\mathrm{Labor}}_{\mathrm{it}}={\beta }_0+{\beta }_1{\mathrm{Mint}}_{\mathrm{it}}+{\beta }_2{\mathrm{X}}_{\mathrm{it}}+{\mu }_{\mathrm{i}}+{\gamma }_{\mathrm{t}}+{\epsilon }_{\mathrm{it}}$$

(2)

In this model, i denotes the firm and t denotes the year. Labor represents corporate labor hiring scale, Mint indicates the development level of the unified national market, X is the vector of control variables, μ and γ represent firm and year fixed effects, respectively, and ε is the error term. This study focuses primarily on the coefficient β. If β is significantly greater than zero, it suggests that the unified national market initiative drives an increase in corporate hiring scales. Furthermore, firm-level clustered robust standard errors are employed in the baseline regressions.

3.4. Descriptive Statistics

Table 1. Descriptive statistical results.

Variable	Observations	Mean	Std. Dev.	Min	Median	Max
Labor	24,612	7.5320	1.0107	2.9957	7.5055	13.4638
Mint	24,612	2.8660	0.1396	2.4123	2.8599	3.5166
Size	24,612	22.0773	1.1407	15.9792	21.9484	28.2930
Lev	24,612	0.4112	0.2056	0.0071	0.3972	2.0239
Roa	24,612	0.0348	0.0895	−2.8706	0.0388	0.8347
Tobinq	24,612	1.9752	1.1936	0.8481	1.5918	7.9061
Cash	24,612	0.0463	0.0731	−0.6702	0.0462	1.1697
Fixed	24,612	0.2000	0.1490	0.0025	0.1695	0.6738
Top1	24,612	0.3323	0.1449	0.0184	0.3095	0.8941
Gdp	24,612	18.2837	1.0731	14.2434	18.4368	19.9729
Second	24,612	0.4005	0.1082	0.1170	0.4094	0.8934
Finance	24,612	4.1600	1.6509	0.7642	3.9539	14.4199

reports descriptive statistics for the primary variables used in our analysis. The dependent variable, Labor, has a mean of 7.5320 and a standard deviation of 1.0107, revealing substantial heterogeneity in the scale of labor employment across the sampled firms. Regarding the key independent variable, Mint, the mean is 2.8660 with a standard deviation of 0.1396. This variation indicates that regional disparities in market integration remain pronounced, providing empirical support for the policy objective of unified national market initiative.

4. Results

4.1. Baseline Regressions

Table 2. Baseline regression results.

Variable	(1)	(2)	(3)
	Labor	Labor	Labor
Mint	0.1491 ***	0.0623 ***	0.0639 ***
	(0.0298)	(0.0223)	(0.0225)
Size		0.6533 ***	0.6509 ***
		(0.0192)	(0.0188)
Lev		0.2364 ***	0.2339 ***
		(0.0555)	(0.0553)
Roa		−0.0299	−0.0307
		(0.0547)	(0.0545)
Tobinq		0.0188 ***	0.0190 ***
		(0.0045)	(0.0045)
Cash		0.0790	0.0828
		(0.0534)	(0.0534)
Fixed		0.8196 ***	0.8185 ***
		(0.0891)	(0.0889)
Top1		0.2626 **	0.2647 **
		(0.1099)	(0.1099)
Gdp			0.0077 **
			(0.0413)
Second			−0.0171
			(0.1607)
Finance			0.0248 **
			(0.0103)
Constant	7.1164 ***	−7.4527 ***	−7.6423 ***
	(0.0853)	(0.4267)	(0.8886)
Firm FE	YES	YES	YES
Year FE	YES	YES	YES
Observations	24,612	24,612	24,612
Adjusted R2	0.8421	0.9124	0.9125

*** and ** represent the significance level of 1% and 5%, respectively.

presents the baseline estimates for Equation (2). In Column (1), which includes firm and year fixed effects but excludes time-varying controls, the coefficient on national unified market development (Mint) is 0.1491 and is statistically significant at the 1% level. Columns (2) and (3) progressively introduce firm- and city-level controls; across these specifications, the coefficient on Mint remains positive and significant at the 1% level, demonstrating robustness. These results provide strong support for Hypothesis 1, suggesting that the development of a national unified market significantly fosters the expansion of corporate labor employment. Economically, the full specification in Column (3) implies that a one-unit increase in the national unified market development index is associated with a 6.39% increase in firm labor employment. This positive effect is consistent with the theoretical prediction that market unification facilitates production scale expansion and alleviates financing constraints.

4.2. Endogeneity Tests

Although the baseline results suggest a robust positive relationship between national unified market development and corporate labor employment, potential endogeneity concerns remain. Specifically, unobserved omitted variables could simultaneously drive both market integration and employment growth, or reverse causality might exist where regions with higher employment growth attract more market integration efforts. To mitigate these endogeneity problems and identify a causal effect, this study employs two complementary identification strategies: an instrumental variable (IV) approach and a difference-in-differences (DID) method.

4.2.1. Instrumental Variable Approach

Following related research [30], we construct our first instrumental variable (IV1) by interacting the city’s average altitude with a time trend (Year). The rationale for this instrument is twofold. First, regarding relevance, rugged terrain and higher altitudes increase inter-regional transportation costs and information friction, thereby hindering the integration of the national unified market. Second, regarding the exclusion restriction, the average city altitude is a strictly geographical feature determined by nature. It is exogenous to unobserved factors influencing a firm’s current labor demand and affects employment only through the channel of market development. Since altitude is time-invariant, interacting it with the year allows us to introduce necessary time variation into the instrument. To ensure the robustness of our identification, we also employ the heteroskedasticity-based identification strategy [31] as a second instrumental variable (IV2). Specifically, the cube of the difference between the national unified market construction and its average value is used as a tool variable. This method leverages the heteroskedasticity of the error terms to achieve identification, providing a valid instrument even in the absence of traditional external instruments.

Table 3. Endogeneity test results.

Variable	(1)	(2)	(3)	(4)	(5)
	Mint	Labor	Mint	Labor	Labor
IV1	−0.0192 ***
	(0.0049)
Mint		5.1189 **		0.0991 ***
		(2.1812)		(0.0256)
IV2			9.6198 ***
			(0.7863)
Open					0.0247 **
					(0.0118)
Control	YES	YES	YES	YES	YES
Firm FE	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES
KP rk LM statistic	17.5930 ***	602.1420 ***
CD rk Wald F statistic	15.0780	149.6730
Observations	24,612	24,612	24,612	24,612	24,612

*** and ** represent the significance level of 1% and 5%, respectively.

reports the Two-Stage Least Squares (2SLS) estimation results. Columns (1) and (2) present the estimates using the geographic instrument (IV1), while Columns (3) and (4) utilize the Lewbel instrument (IV2). Across both specifications, the coefficients remain statistically significant and consistent with the baseline findings, confirming that our main conclusions are robust to endogeneity concerns.

4.2.2. Difference-in-Differences Approach

To further mitigate endogeneity concerns and strengthen causal inference, we exploit the phased implementation of the Negative List for Market Access system as a quasi-natural experiment. We employ a multi-period Difference-in-Differences (DID) methodology to estimate the policy’s impact. The rollout of this system occurred in three distinct waves: the pilot phase began in 2016 in four regions (Tianjin, Shanghai, Fujian, and Guangdong); the program was expanded in 2017 to include eleven additional provinces and municipalities (Hunan, Chongqing, Liaoning, Zhejiang, Henan, Hubei, Sichuan, Guizhou, Shaanxi, Jilin, and Heilongjiang); and the system was fully implemented nationwide in December 2018.

Before the enactment of the Negative List system, China maintained a positive list model of market access, wherein agents were restricted solely to sectors explicitly authorized by the state. By effectively barring entry into unlisted fields, this regime generated substantial administrative discretion. Local governments leveraged this scope to impose implicit barriers, exacerbating market segmentation and obstructing the development of a unified national market. In contrast, the Negative List system adopts a default open approach, explicitly listing only those industries subject to prohibition or restriction. By rendering all unlisted sectors fully accessible, this framework sharply delineates the boundary between state intervention and market forces, effectively constraining local protectionism and administrative discretion. This structural reform reinforces the market’s decisive role in resource allocation, improves allocative efficiency, and underpins the construction of a unified national market within the new development paradigm. Given these characteristics, we treat the rollout of this policy as a quasi-natural experiment and construct a difference-in-differences (DID) model to identify the impact of the national unified market’s development on firm-level labor employment. The specific model is specified as follows:

$${\mathrm{Labor}}_{\mathrm{it}}={\beta }_0+{\beta }_1{\mathrm{Open}}_{\mathrm{it}}+{\beta }_2{\mathrm{X}}_{\mathrm{it}}+{\mu }_{\mathrm{i}}+{\gamma }_{\mathrm{t}}+{\epsilon }_{\mathrm{it}}$$

(3)

In this specification, Open denotes the policy dummy variable, equal to 1 for treated regions in the post-implementation period and 0 otherwise. The remaining covariates are consistent with Equation (2). As shown in Column (5) of Table 3, the estimated coefficient for Open is 0.0247 and is statistically significant at the 5% level. Economically, this suggests that, on average, the implementation of the unified market policy increased firm employment by 2.47%. This result robustly corroborates the paper’s central hypothesis.

4.3. Robustness Tests

To ensure the reliability of the findings, this study conducts a series of robustness tests using alternative specifications and sample adjustments.

Table 4. Robustness test results.

Variable	(1)	(2)	(3)	(4)	(5)	(6)
	Labor	Labor	Labor	Labor	Labor	Labor
Segm	−7.8713 **
	(3.3511)
Mint		0.0655 ***	0.0620 ***	0.0639 **	0.0639 **	0.0602 **
		(0.0220)	(0.0218)	(0.0292)	(0.0254)	(0.0281)
Control	YES	YES	YES	YES	YES	YES
Firm FE	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES
City FE	NO	YES	NO	NO	NO	NO
Ind FE	NO	NO	YES	NO	NO	NO
Observations	24,612	24,611	24,610	24,612	24,612	12,109
Adjusted R2	0.9125	0.9147	0.9171	0.9125	0.9125	0.9094

*** and ** represent the significance level of 1% and 5%, respectively.

presents robustness checks regarding variable measurement, specification, and sample selection. Column (1) replaces our derived development index with the raw market segmentation index; as expected, the coefficient sign reverses, but the economic implication remains statistically significant and consistent. Columns (2) through (5) test the sensitivity of our specification. We augment the model with city and industry fixed effects to absorb time-invariant local and sectoral shocks (Columns (2) and (3)) and re-cluster standard errors at the city and industry levels to account for spatial and sectoral correlation (Columns (4) and (5)). In all cases, the baseline estimates remain robust. Finally, in Column (6), we exclude municipalities and sub-provincial cities to ensure our results are not driven by the unique administrative or economic status of these jurisdictions. The main findings hold.

5. Mechanism Tests and Heterogeneity Analysis

5.1. Mechanism Tests

The foregoing analysis has provided strong evidence for the employment-promoting effect of national unified market development; we now turn to an investigation of the causal mechanisms. We empirically test the channels identified in our theoretical analysis by examining the impact of market unification on several mediating variables, following the approach of [32]. The model is specified as follows:

$${\mathrm{Mediator}}_{\mathrm{it}}={\beta }_0+{\beta }_1{\mathrm{Mint}}_{\mathrm{it}}+{\beta }_2{\mathrm{X}}_{\mathrm{it}}+{\mu }_{\mathrm{i}}+{\gamma }_{\mathrm{t}}+{\epsilon }_{\mathrm{it}}$$

(4)

In this context, Mediator represents the mechanism variable, while all other variables remain consistent with those specified in Model (2).

5.1.1. Production Scale Expansion Effect

To investigate the production scale mechanism, we regress firm scale on the unified market index, which is defined as the log of operating revenue [1]. The results in

Table 5. Mechanism test results.

Variable	(1)	(2)	(3)	(4)	(5)	(6)	(7)
	Scale	SA	Cost	Credit	High-Sub	Low-Sub	Labor
Mint	0.0635 ***	−0.0088 ***	−0.0057 **	0.0272 ***	0.0601 *	0.0602 *	0.0530 **
	(0.0226)	(0.0034)	(0.0023)	(0.0100)	(0.0317)	(0.0364)	(0.0245)
Mint × Sub							−0.0040
							(0.0028)
Control	YES	YES	YES	YES	YES	YES	YES
Firm FE	YES	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES	YES
Observations	24,610	24,612	24,002	24,612	10,393	10,525	21,898
Adjusted R2	0.9421	0.9641	0.3873	0.1591	0.9260	0.9122	0.9133

***, **, and * represent the significance level of 1%, 5% and 10%, respectively.

, Column (1) show a robust positive impact of Mint on Scale. This confirms that market integration facilitates the expansion of firm output, thereby generating the derived demand for labor anticipated by Hypothesis 2.

Three mechanisms explain this scale-driven employment growth. For one thing, the reduction in market access restrictions facilitates cross-regional investment and capacity expansion. For another, the intensification of competition driven by lower entry barriers stimulates R&D and innovation, allowing enterprises to gain market share and expand their business scale. Last but not least, improved resource allocation enhances production efficiency. This efficiency gain reduces unit costs, stimulating a scale effect where increased output drives a corresponding rise in labor demand [33].

5.1.2. Financing Constraint Alleviation Effect

Column (2) of Table 5 tests the financing channel using the SA index. We find that national market integration significantly mitigates corporate financing constraints. This reduction in financial frictions facilitates labor expansion, confirming Hypothesis 2.

We attribute this result to two channels. First, the dismantling of regional segmentation broadens access to external finance, allowing firms to tap into national capital markets rather than relying solely on local liquidity. Second, market integration reduces information asymmetry by standardizing disclosure and transparency. This lowers the cost of capital and facilitates external monitoring. By mitigating financial frictions, firms gain the liquidity necessary to finance labor expansion [34].

We further validate the financing channel by examining the intensive and extensive margins of credit access [35,36]. Columns (3) and (4) of Table 5 show that market unification significantly reduces the effective interest rate (Cost) while increasing debt capacity (Credit). By simultaneously lowering the price and increasing the quantity of external finance, these estimates confirm that the national unified market mitigates financial frictions, validating the mechanism proposed above.

5.1.3. Exclude Competitive Hypothesis

The preceding empirical results confirm that the construction of a Unified National Market significantly enhances the scale of corporate employment. However, given the active role of the Chinese government in the labor market, a competitive explanation that must be excluded is that this employment growth may stem from direct fiscal subsidies provided by the government to stabilize employment, rather than the efficiency dividends brought by market integration. Specifically, if regions with higher levels of market unification are also those with stronger fiscal capacity and higher corporate subsidies, the expansion of corporate employment might merely be a short-term blood transfusion effect derived from fiscal funds, rather than a blood-making function stimulated by the optimization of the market environment.

To distinguish these mechanisms, this paper examines the differential performance of Unified National Market construction across samples with varying government subsidy intensities. The logic is as follows: if the previous conclusions were primarily driven by fiscal subsidies, the promoting effect of market unification should disappear or be substantially weakened in the low-subsidy group that receives little or no subsidy. Therefore, we divide the full sample into high-subsidy and low-subsidy groups based on the median ratio of government subsidies to operating revenue. The results in Columns (5) and (6) of Table 5 show that, regardless of subsidy intensity, the estimated coefficient of the core explanatory variable Mint is significantly positive at the 1% level, with no significant difference in magnitude between the two groups. Furthermore, we introduce an interaction term between the level of market unification and a subsidy dummy variable (Sub) into the baseline model to test for potential heterogeneity. The results indicate that the interaction coefficient is statistically insignificant, reaffirming that the empowering effect of the Unified National Market on corporate employment does not exhibit structural differences based on subsidy levels. This finding suggests that market unification drives employment independently of fiscal support. Rather than relying on external financial injections, it operates through a self-sustaining mechanism that improves the business climate and enhances the efficiency of resource allocation. The above evidence effectively rules out the possibility of the fiscal subsidy effect being the primary driving mechanism, further verifying the robustness of this paper’s conclusions.

5.2. Heterogeneity Analysis

Having established the average treatment effect, we next explore the distributional consequences of market unification. We test for heterogeneous impacts across three margins: firm ownership (SOE vs. non-SOE), factor intensity, and regional development.

5.2.1. Ownership Type

We further hypothesize that the employment effects of national unified market development are conditional on firm ownership structure. State-owned enterprises (SOEs), often characterized by soft budget constraints and multi-objective mandates (such as maintaining social stability), typically exhibit labor demand rigidities that insulate them from market signals. In contrast, non-SOEs operate under hard budget constraints and are more sensitive to the efficiency gains and reduced transaction costs derived from market integration. Consequently, we expect the employment-promoting effect of market unification to be significantly more pronounced for non-SOEs, whose labor adjustments are driven primarily by market fundamentals rather than administrative directives.

To test this hypothesis, we partition the sample by ownership structure and estimate the baseline specification separately for SOEs and non-SOEs. The results, presented in Columns (1) and (2) of

Table 6. Heterogeneity analysis results.

Variable	SOEs	Non-SOEs	Labor-Intensive Firms	Capital-Intensive Firms	Labor-Intensive Industries	Capital-Intensive Industries	Eastern Region	Central-Western Regions
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
	Labor	Labor	Labor	Labor	Labor	Labor	Labor	Labor
Mint	0.0440	0.0680 ***	0.0820 ***	0.0202	0.1203 ***	0.0123	0.0665 **	0.0164
	(0.0418)	(0.0258)	(0.0279)	(0.0264)	(0.0364)	(0.0255)	(0.0259)	(0.0403)
Control	YES	YES	YES	YES	YES	YES	YES	YES
Firm FE	YES	YES	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES	YES	YES
Observations	7517	16,885	11,761	11,712	10,698	13,286	17,579	7019
Adjusted R2	0.9123	0.9137	0.9373	0.9403	0.9254	0.9305	0.9173	0.9085

***, ** represent the significance level of 1% and 5%, respectively.

, reveal significant heterogeneity. For the SOE subsample, the coefficient on Mint is statistically indistinguishable from zero, consistent with the view that administrative rigidities insulate state-owned firms from market signals. In contrast, the coefficient for non-SOEs is positive and statistically significant. This divergence supports the prediction that the employment gains from national market unification are concentrated in the non-state sector, where firms are more responsive to improvements in allocative efficiency.

5.2.2. Factor Intensity

We posit that the employment elasticity of market unification is heterogeneous across factor intensities. Labor-intensive firms, characterized by lower adjustment costs for their primary input, are expected to exhibit a stronger employment response to the reduced frictions of a unified market. Capital-intensive firms, whose expansion relies more heavily on fixed asset accumulation, will likely show a weaker response. Consequently, the pro-employment effects of market integration should be most pronounced in labor-intensive industries.

We examine the effect heterogeneity through subsample regressions partitioned by factor intensity. We define capital intensity as the logarithm of the capital-labor ratio (net fixed assets per employee). The sample is bifurcated into capital- and labor-intensive groups based on the median firm-level value. To address potential aggregation bias, we replicate this analysis at the industry level, classifying sectors based on the mean capital intensity of their constituent firms.

The estimates in Columns (3) through (6) of Table 6 indicate that the employment effects of market integration are concentrated in labor-intensive sectors. While labor-intensive firms respond robustly to the expansion, the estimated coefficients for capital-intensive firms are smaller and suggest lower employment sensitivity to market unification shocks.

5.2.3. Regional Characteristics

The establishment of a national unified market aims to reduce interregional segmentation, thereby enhancing factor mobility and allocative efficiency across goods, services, capital, and labor markets. However, the realization of these efficiency gains is endogenous to local endowments. Specifically, the marginal impact of market integration is theoretically contingent upon regional variations in infrastructure density, market depth, and institutional capacity.

Given the eastern region’s comparative advantage in institutional quality and market depth, we hypothesize that the employment effects of market integration are spatially heterogeneous. To test this, we partition the sample into eastern and central/western subsamples. The results confirm our hypothesis: for eastern firms, the coefficient on Mint is positive and statistically significant, indicating that market unification drives labor demand. In contrast, the estimated effect for central and western firms is statistically indistinguishable from zero, suggesting that structural rigidities in these regions may dampen the policy’s transmission to labor markets.

6. Further Analysis

6.1. Corporate Labor Hiring Structure

While the preceding analysis establishes the extensive margin effects of market integration, it leaves the intensive margin of skill composition unaddressed. Achieving high-quality employment requires not just scale expansion but structural optimization. To investigate whether market unification enhances human capital composition, we follow related research [1], and disaggregate labor demand by skill tier. We classify employees into three skill tiers based on their educational attainment: high-skilled (graduate degree or higher), medium-skilled (bachelor’s or associate degree), and low-skilled (high school education or below). The natural logarithm of the number of employees in each category is then used as the dependent variable in our baseline regression model.

Table 7. Further analysis results.

	(1)	(2)	(3)	(4)	(5)
	Graduate	Bachelor	Junion	Ls1	Ls2
Mint	0.0578 *	0.0628 **	0.0598	0.0059 *	0.0020 *
	(0.0343)	(0.0257)	(0.0369)	(0.0031)	(0.0010)
Control	YES	YES	YES	YES	YES
Firm FE	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES
Observations	18,336	23,624	23,912	21,959	21,959
Adjusted R2	0.9240	0.9108	0.8761	0.8204	0.6722

** and * represent the significance level of 5% and 10%, respectively.

, Columns (1)–(3), reveals a heterogeneous impact across skill tiers: the coefficient on Mint is positive and significant for medium- and high-skilled labor but statistically indistinguishable from zero for low-skilled workers. This suggests that market integration induces skill upgrading within firms, rather than merely expanding the workforce proportionally. We attribute this structural shift to two mechanisms. First, the pro-competitive effect of integration incentivizes firms to accumulate human capital, thereby fostering innovation and efficiency. Second, reduced labor market frictions enhance the spatial allocation of skilled labor, allowing firms to access a broader, cross-regional talent pool.

6.2. Corporate Labor Income Share

Beyond employment levels and skill composition, we examine the distributional consequences of market integration by estimating its impact on the firm-level labor income share. To the extent that integration enhances allocative efficiency, it may alter the division of rents between capital and labor. We construct two measures of the labor share: (1) the ratio of cash wages to operating revenue (LS1); and (2) an accrual-based measure defined as total compensation (cash wages plus the net change in payable compensation) divided by operating revenue (LS2)

Columns (4) and (5) of Table 7 report the results for labor income share. We find that market integration is associated with a significant increase in the labor share, suggesting that the benefits of integration are not accruing solely to capital owners. We propose three mechanisms driving this redistribution. First, the expansion of labor demand induced by market integration likely strengthens workers’ bargaining power, putting upward pressure on wages. Second, by reducing barriers to entry and harmonizing standards, a unified market intensifies competition for high-quality human capital, incentivizing firms to offer higher compensation to attract and retain talent. Finally, efficiency gains from improved resource allocation may generate surplus rents that are partially shared with labor through higher wages.

7. Conclusions and Policy Implications

Employing a sample of Chinese A-share listed firms from 2011 to 2023, we investigate the impact of national market integration on corporate employment. Our findings demonstrate that the development of a unified market significantly fosters firm-level employment growth. Mechanism analysis indicates that this effect operates through two primary channels: the expansion of production scale and the relaxation of financing constraints. Heterogeneity tests reveal that the employment response is most pronounced among non-state-owned enterprises, labor-intensive firms, and those located in the eastern region. Finally, we show that market unification improves the composition of employment and increases the labor share of income.

Our findings suggest several policy implications. To alleviate the bottlenecks constraining corporate scale and financing, the Unified National Market initiative should shift from hard infrastructural connectivity toward soft institutional integration. Specifically, because our mechanism analysis identifies market segmentation as a driver of financing constraints, policy efforts should prioritize the removal of regional financial barriers. We recommend accelerating the implementation of cross-regional credit mutual recognition and harmonizing collateral standards. These steps are vital for ensuring that the liquidity released by market integration is directed toward the real economy. Concurrently, maximizing the production scale effect requires strict adherence to the Negative List for Market Access. This necessitates a dynamic monitoring mechanism capable of detecting disguised protectionist measures including discriminatory procurement and regional blockades.

Second, given the heterogeneous impacts of market integration, differentiated support policies are necessary to ensure inclusive growth, particularly for non-SOEs and less developed regions. Although our results identify non-SOEs as the primary beneficiaries of efficiency gains, these firms remain highly susceptible to market volatility. Consequently, policymakers must champion the principle of competitive neutrality by removing implicit discrimination against private enterprises in resource allocation and market access, thereby stabilizing their capacity to absorb labor. Addressing the developmental lag in the central and western regions requires more than increased infrastructure investment. It demands leveraging the Unified National Market to facilitate the gradient transfer of industries. By harmonizing standards for land use and energy consumption, the government can guide the orderly relocation of labor-intensive sectors from the coast to the interior, effectively converting the labor endowments of inland regions into engines of employment growth.

Third, to tackle the structural mismatch between labor supply and the rising demand for high-skilled talent identified in our analysis, policy focus should prioritize enhancing the cross-regional mobility and matching efficiency of human capital. As market unification drives the demand for medium- and high-skilled labor, existing localized education and employment management systems act as impediments. We recommend establishing a national mutual recognition system for vocational qualifications and professional titles to lower the transaction costs of talent mobility. Furthermore, sustaining the positive effect on labor income share requires a wage determination mechanism aligned with a unified market. By linking labor compensation directly to enterprise productivity growth during primary distribution, policymakers can ensure that the efficiency dividends of market integration translate into high-quality employment with competitive wages.

8. Limitations and Future Prospects

This study leaves room for further exploration in two main aspects. Primarily, there is a need for the refinement and expansion of the dimensions of measurement indicators. This paper follows the mainstream paradigm in existing literature by adopting the relative price method based on the Law of One Price to measure the development level of the national unified market. Although this indicator effectively characterizes the integration trend of product markets and the efficiency of commodity circulation, serving as a valid proxy variable for the construction of a national unified market, it may still contain noise when used as a proxy for barriers to labor factor mobility, particularly in capturing specific institutional obstacles. Future research could attempt to construct a multi-dimensional indicator system for factor market barriers to more directly and microscopically isolate the specific effects of institutional obstacles on labor resource misallocation.

Another critical avenue for future inquiry involves verifying the generalizability of the research sample. Constrained by data availability, the empirical analysis in this paper primarily focuses on listed companies. Compared to small and medium-sized enterprises (SMEs), listed companies typically enjoy superior resource endowments, more preferential access to credit markets, and unique labor adjustment rigidities. Consequently, the response elasticity of employment to market integration may exhibit heterogeneity across enterprises of different scales. Nevertheless, the economic logic underpins our mechanism analysis. Specifically, production scale expansion and the alleviation of financing constraints possess universal applicability. Given that SMEs face more severe liquidity constraints, the marginal utility of market unification in reducing financial frictions may theoretically be even greater for the non-listed sector. Furthermore, considering that listed companies often serve as core entities within industrial clusters, their expansion can frequently generate positive spillovers through linkage effects, thereby stimulating the derived labor demand of upstream and downstream SMEs. Future research should utilize micro-level data covering non-listed entities to empirically verify these transmission channels, thereby providing a more panoramic perspective of the labor market.