Digitalization and Labor Force Restructuring in China: Empirical Evidence From a Political Economy Framework

Abstract

The digitalization of the economy is reshaping labor division while intensifying employment polarization and income inequality. Unlike conventional human capital or skill‐biased technological change perspectives that treat digitalization as neutral progress, this study reconceptualizes it—grounded in Marxist political economy—as a mechanism through which capital increases the organic composition, expands the reserve army of the industry, and fosters a new middle class. Using panel data from 31 Chinese provinces (2001–2024) and employing FGLS, Prais‐Winsten, and CCE‐MG estimators, the study finds that digitalization significantly reduces employment for unskilled and low‐skilled laborers, consistent with the contemporary relevance of the reserve army theory. Simultaneously, it substantially raises demand for medium‐ and high‐skilled laborers, with medium‐skilled workers benefiting most, consistent with the rise of a new middle class. Heterogeneity analysis shows stronger positive effects in regions with high capital formation and consumption. Theoretically, this study bridges Marxist political economy with digital economy research. Policy implications suggest that addressing digital inequality requires more than training—including social protection, digital service taxes, and labor‐enhancing technologies.