The Impact Of Human Capital Misallocation On Innovation In China

The world today is experiencing a major change unprecedented in a century.a new round of scientific and technological revolution and industrial change,the rise of anti-globalization,global economic instability and uncertainty increased significantly.And China’s economy is currently facing a structural slowdown,entering a "deep water" area of transformation and development,China’s development is facing new strategic opportunities and challenges.In the 14th Five-Year Plan,it is pointed out that "adhering to the central position of innovation in the overall situation of China’s modernization,and making science and technology self-reliance and self-improvement as the strategic support for national development",aiming to improve innovation to promote high-quality economic development.And to successfully achieve the innovation-driven strategy,the economy to achieve high-quality development,it is inseparable from the support of talent.2022 In early October,the Chinese Office and the State Office jointly issued the "Opinions on Strengthening the Construction of Highly Skilled Talents in the New Era" mentioned that "by 2035......the number of highly skilled personnel,structure is compatible with the requirements of the basic realization of socialist modernization".This target task not only emphasizes the importance of the number of talents,but also puts forward the requirements for the structure of talents,i.e.the configuration of talents.Human capital is the knowledge,skills and abilities embedded in workers’ bodies and invested in the production process.As a scarce resource,human capital should flow to highefficiency production sectors as a priority to ensure that human capital matches the development of high-efficiency sectors and plays a role in improving innovation and promoting economic growth.However,in reality,China’s human capital allocation is not only far from the Pareto optimal state,but also shows inefficiency and unbalanced misallocation in different dimensions,which not only does not give full play to the value of talents and causes waste of human capital,but also causes a large potential loss of innovation,which is not conducive to the high-quality development of China’s economy.Therefore,human capital misallocation has become an unavoidable problem in the process of China’s economic development,and must be paid attention to and alleviated in order to ensure the successful implementation of the innovationdriven strategy and the realization of high-quality economic development.In this paper,we study the impact of human capital misallocation on innovation at the macro-sectoral level,the meso-ownership level and the micro-enterprise level based on different dimensions of human capital misallocation.First,we divide the economy into public and private sectors based on whether the product is exclusive and competitive,and extend the current study,which is limited to the narrow public sector(government sector),to include both the government sector and the productive public sector.The private sector is the main driver of innovation transformation,while the public sector provides basic scientific research and basic production guarantees for technological innovation.The optimal allocation of human capital between the public and private sectors is important if innovation is to be promoted.Secondly,within the private sector,state-owned enterprises(SOEs),which are related to national security and are in important industries that are the lifeblood of the national economy,assume the role of "breakers" and "leaders" in strategic emerging technology innovation.At the same time,SOEs have gained excessive profits due to their monopoly status and policy subsidies,which may lead to moral hazard and reduce innovation efficiency.In contrast,non-SOEs,which are more competitive in the market,add vitality to market innovation.Therefore,the rational allocation of talent between SOEs and non-SOEs is critical to innovation.Finally,enterprises are the micro-units that directly produce innovation,and the inter-sectoral and ownership human capital misallocation is,from a micro perspective,constituted by an individual firmlevel human capital misallocation.Moreover,the integration of human capital with enterprise resources is the core of innovation,and ensuring the correct allocation of human capital at the enterprise level is a key part of improving innovation.Therefore,in this paper,the current situation of human capital misallocation and its impact on innovation are studied from the above three dimensions,specifically:First,the typical facts of current human capital misallocation in China are examined,and the human capital misallocation situation in each dimension is estimated and analyzed using the constructed relative price distortion of human capital and the deviated value of human capital output efficiency methods.First,the government sector is facing severe "subsidized"human capital price distortions,and human capital is over-allocated and needs to be transferred to other sectors;the productive public sector has been suffering from human capital undersupply misallocation,but the misallocation has been improving year by year;the private sector has changed from redundant supply to undersupply of human capital.Second,the TFP loss caused by the ownership misallocation exceeds 10%on average and tends to increase between 1998 and 2007 and to decrease after 2007;finally,the majority of firms face "taxed"human capital price distortions and under-allocation of human capital,while very few firms have Finally,the majority of firms face "taxed" human capital price distortions,underallocation of human capital,and extreme human capital redundancy(long left tail and short right tail in the distribution).Second,the quantitative and price mechanisms of human capital misallocation affecting innovation are constructed.On the one hand,a three-sector model consisting of governmental sector,productive public sector and private sector,and a two-sector model consisting of stateowned sector and non-state-owned sector are constructed from macro and meso perspectives,relying on the endogenous growth model,respectively,to explain the quantitative mechanism of inter-sectoral and ownership human capital misallocation affecting innovation.The analysis shows that the deviation of intersectoral(ownership)human capital allocation from the optimal value leads to human capital misallocation,which in turn inhibits innovation,and the larger the absolute value of the deviation from the optimal value,the more serious the intersectoral(ownership)human capital misallocation is,and the correspondingly more serious the inhibitory effect on innovation.On the other hand,from a micro perspective,based on Hsieh and Klenow’s(2009)theoretical study on the impact of resource misallocation on TFP,the degree of human capital misallocation is represented by the deviation of the actual cost of human capital used by firms from the average cost of human capital(all firms)to construct a price mechanism for human capital misallocation to affect innovation.The analysis shows that the price distortion of human capital is numerically negatively related to the innovation output differential when other factors are equal,and the more severe the price distortion of human capital is,the more innovation deviates from innovation in the ideal state.Third,combining the quantitative mechanism transmission model of human capital misallocation and innovation between sectors constructed in the second point,the three sectoral human capital allocation variables are constructed using provincial data from 2004-2019,and the empirical analysis reveals that the allocation of redundant human capital in the government sector inhibits regional innovation,and the relationship between human capital allocation and innovation between the productive public sector and the private sector shows a nonlinearinverted U-shape.This finding is consistent with the theoretical model.This finding isconsistent with the theoretical model.There is an optimal value of human capital allocation between the productive public and private sectors that maximizes innovation,and any deviation from the optimal value is a human capital misallocation that is detrimental to innovation.It is also confirmed that the current intersectoral human capital misallocation is the underallocation of human capital in the productive public sector and the relative redundancy in the private sector,i.e.,on the left side of the inflection point of the inverted U-shaped curve,which is consistent with the conclusion of the analysis of the current situation of intersectoral human capital misallocation in the first point.In addition,the degree of marketization of technology factors has a significant moderating effect on the inverted U-shaped relationship,and a high degree of marketization of technology factors makes the inverted U-shaped curve flatter and compensates for the negative effect of human capital in the government sector on innovation.In addition,regions with strong IPR regime can weaken the negative effect of government sector human capital on innovation,and the effect of productive public sector relative private sector human capital on innovation is also consistent with the benchmark regression.However,the above relationship is not significant in regions with weak intellectual property protection.Fourth,combining with the quantitative mechanism transmission model of ownership human capital misallocation and innovation constructed in the second point,the impact of ownership human capital misallocation on innovation is examined by constructing ownership human capital allocation variables using data from the Chinese industrial enterprise database.First,the relationship between ownership human capital allocation and manufacturing innovation is inverted U-shaped,and there is an optimal value of ownership human capital allocation that maximizes innovation,and any human capital allocation that deviates from the optimal value will be detrimental to innovation.Moreover,as human capital accumulation and technology level mature,the human capital allocation among all systems gradually transitions from the left side of the equilibrium point(inflection point)to the right side of the equilibrium point during 2000-2013,i.e.,the misallocation of human capital among all systems manifests itself as a change from shortage to redundancy of human capital in state-owned economy.Second,there is a threshold effect of government support in the effect of ownership human capital misallocation on manufacturing innovation;when government support is at a low level,increasing state-owned relative human capital can significantly promote manufacturing innovation;when government support exceeds the threshold,state-owned relative human capital redundancy inhibits innovation,but not significantly.Finally,the equilibrium point of human capital allocation is different for different technology-intensive industries,and the position of the equilibrium point is to the right or up for technology factor-intensive industries.Fifth,combining the price mechanism transmission model of human capital misallocation and innovation among firms constructed in the second point,an empirical analysis is conducted on the data of A-share listed companies from 2010 to 2020,and after a series of robustness tests and exclusion of endogeneity problems,it is concluded that human capital price distortion and firm innovation show an inverse relationship numerically,i.e.,upward human capital price distortion("taxing" distortions)discourage firm innovation,while downward distortions in human capital prices("subsidizing" distortions)promote firm innovation.But both upward and downward price distortions are known as human capital misallocationes,and human capital misallocationes make firms’ actual innovation deviate from the ideal.The larger the absolute value of human capital misallocation,the higher the deviation of actual innovation from ideal innovation.Further heterogeneity analysis reveals that human capital price distortion significantly reduces the number of patent applications in high-tech industries and non-state enterprises,but this relationship is not significant in traditional industries and state enterprises.In addition,the causes of inter-firm human capital misallocation are explored,and it is argued that administrative intervention exacerbates inter-firm human capital distortion.Finally,using the free trade experiment as a quasi-natural experiment,the mechanisms affecting inter-firm human capital distortion were explored,and it was found that the allocation of human capital among service firms in the zone was effectively optimized through the market order effect.Based on the above analysis,it is clear that human capital allocation and innovation are closely related as important grips and drivers for building a new development pattern for the Chinese economy that is transforming to high-quality development.Therefore,in order to successfully implement the innovation-driven strategy and achieve high-quality economic development,several policy recommendations are proposed.First,to control the scale of government human capital,limit government power,and establish a more standardized and transparent income adjustment mechanism for civil servants.Second,to break the barriers to human capital flow,strengthen the effective allocation of talent market,and guide the reasonable and orderly flow of human capital among sectors,ownership systems and enterprises.Third,formulate a reasonable talent policy to achieve innovation incentives for scientific and technological talents.Fourth,continue to actively promote the reform of mixed ownership of state-owned enterprises,promote the optimization of the layout and structural adjustment of the state-owned economy,and enhance the efficiency of resource allocation of state-owned enterprises.Fifth,optimize the system supply and policy system of the economy.Improve the intellectual property protection system and strengthen the enforcement of the intellectual property protection system.