Talent policies have become an important policy instrument for Chinese local governments to attract skilled labor and support high-quality economic development. However, the effectiveness of such policies depends not only on whether they can attract talent inflows, but also on whether the incoming talents can be effectively matched with local industrial structures, firms’ labor demand, and suitable jobs.

Using the first introduction of talent policies by prefecture-level cities during 2009–2019 as a quasi-natural experiment, this paper matches manually-collected talent policy documents with population census and sample survey data. Based on the dispersion of adjusted wage returns across counties and districts within the same city, it constructs a city-year measure of intra-city labor allocation efficiency and examines the impact of talent policies on urban labor allocation efficiency. The results show that talent policies significantly improve urban labor allocation efficiency. Heterogeneity analysis further indicates that this effect depends strongly on city characteristics and policy design, and it is more pronounced in cities with stronger industrial activity, larger urban scale, better road transport accessibility, lower fiscal pressure, and higher hukou-based settlement thresholds. In terms of policy design, policies that include monetary subsidies, specifying educational or professional requirements, targeting experienced or high-level talents, and clarifying employment directions generate stronger improvement effects. Mechanism testing shows that talent policies improve the allocation of high-skilled labor within cities by attracting high-skilled labor inflows and facilitating their effective matching with firms’ labor demand. Further, the agglomeration of high-skilled labor generates employment spillovers for low-skilled labor through skill complementarity, helping them move into jobs better suited to their skills, deepening the division of labor, and ultimately improving overall urban labor allocation efficiency. In addition, talent policies also raise firms’ TFP and promote high-quality economic development.

This paper makes the following marginal contributions: First, it extends the evaluation of talent policies from talent attraction and firm innovation to urban labor allocation efficiency. Second, it reveals the indirect impact of talent policies on low-skilled labor. Third, it identifies the heterogeneous effects of different policy designs.