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1524In the context of China’s innovation-driven development strategy, human capital is regarded as a fundamental endogenous force driving technological advancement. Harmonious labor relations can facilitate reciprocal exchange among workers and mitigate latent conflicts within the employment relationship. Accordingly, whether the establishment of harmonious labor relations can help firms retain and effectively utilize human capital has become a critical research question in the context of high-quality corporate development.
To identify the causal effect, this paper constructs a multi-period DID model based on the national designation of “Model Enterprises with Harmonious Labor Relations”. Empirical results show that firms selected as model enterprises experience significant improvements in innovation performance. Mechanism testing indicates that harmonious labor relations enhance innovation primarily through two channels: improved interpersonal relationships among employees and enhanced communication and trust between the management and employees. Furthermore, the innovation-enhancing effect is more pronounced in firms with stronger internal innovation resources or operating in less favorable external innovation environments.
This paper offers three marginal contributions: First, it adopts a nationally endorsed evaluation as the core indicator for measuring labor relation harmony. Second, it integrates a holistic assessment of labor relations with the dual mechanisms of reciprocal exchange among employees and between the management and employees, thus revealing its role in fostering innovation. Third, it provides empirical evidence on the importance of harmonious labor relations in stimulating firm-level innovation, offering micro-level insights to support policy efforts aimed at advancing labor harmony and promoting high-quality innovation in China.
