Digital transformation and labor allocation efficiency: examining construction firms

Purpose The construction industry has long been constrained by a reliance on tacit knowledge and fragmented collaboration, leading to pronounced labor misallocation. The rapid acceleration of digital transformation offers a potential pathway to mitigate this challenge. This study aims to investigate how digital transformation improves labor allocation efficiency in construction enterprises and identifies the underlying micro-level governance mechanisms. Design/methodology/approach Using a sample of A-share listed construction enterprises in China from 2011 to 2023, this study constructs a digital transformation index via textual analysis of corporate annual reports. The index is then incorporated into a labor allocation efficiency model and estimated using fixed-effects regressions, with multiple robustness checks to ensure the reliability of the findings. Findings Digital transformation significantly curtails inefficient deviations in labor input, thereby enhancing overall labor allocation efficiency. Mechanism analyses reveal two primary pathways: driving human capital upgrading by increasing the proportion of highly skilled and educated personnel and facilitating organizational flattening by reducing redundant managerial layers. These pathways mitigate agency conflicts, accelerate decision-making and exhibit a mutually reinforcing effect. Heterogeneity analyses demonstrate that this corrective impact is more pronounced in non-state-owned enterprises and during advanced stages of digitalization, while remaining unaffected by firm size. Practical implications The findings suggest that managers should perceive digitalization not merely as a technological upgrade but as an organizational-level structural transformation. Optimizing allocation efficiency requires the synchronized advancement of organizational restructuring and human capital upgrading so that both evolve in alignment with the digitalization process. Originality/value The primary contribution of this study lies in shifting the analytical focus of existing labor research. Rather than examining labor investment primarily through the lens of financing constraints, this research demonstrates that digital transformation helps reduce structural mismatches by improving organizational governance and human capital structure. Consequently, it provides novel empirical evidence on the functional mechanisms of digital technology within traditional, high-friction industries.