Taking Chinese “Lean-and-Healthy” Reform as a quasi-natural experiment and based on the sample of A-share listed firms from 2011 to 2019, this study finds that the reform significantly improves the labor investment efficiency in state-owned enterprises. The effect operates primarily through enhanced managerial governance effectiveness and optimized human capital structure. Heterogeneity analyses show that the effect of the reform is highly dependent on internal and external institutional environments, with more pronounced effects in firms with well-developed legal systems, mature labor markets, clear executive promotion expectations, and strong external supervision. Further research reveals a structural difference in the reform effects: while the reform effectively mitigates overinvestment in labor, its impact on alleviating labor underinvestment is limited and emerges only in firms with strong internal incentives and solid capability foundations, which highlights the asymmetric role of the reform in “reducing redundancy” versus “making up for deficiencies”.