Social Mobility and Firms’ Total Factor Productivity: Evidence from China

Abstract

The key to achieving sustainable growth is to increase total factor productivity. What role does the openness of social structure play in promoting total factor productivity? Based on data from the China Labor-force Dynamic Survey (CLDS), we used the methodology of intergenerational order correlation to measure city-level absolute mobility and to examine the impact of social mobility on the total factor productivity of Chinese manufacturing firms. The results show that the following: (1) Higher social mobility has a significant positive impact on firms’ TFP. Our results still hold after using the instrumental variables strategy to mitigate the endogeneity problem and performing a series of robustness tests. (2) Heterogeneity tests show that the positive effect on total factor productivity is more pronounced in non-state-owned enterprises, small- and medium-sized enterprises (SMEs), and technology-intensive enterprises. Meanwhile, a higher level of marketization reduces the sensitivity of enterprises’ TFP to social mobility. (3) Three identified channels are human capital allocation, fairness perception, and technological innovation. Our findings inspire the government to promote the system and mechanism reform of social flow and improve sustainable development ability.