The purpose of this study is to examine the effect of real earnings smoothing on labor investment efficiency. Real earnings smoothing refers to managers' actions to reduce earnings volatility by adjusting real operating activities rather than through accounting choices. Our results show that a higher level of real earnings smoothing decreases both overinvestment, in which actual net hiring exceeds predicted net hiring, and underinvestment, in which actual net hiring falls short of predicted net hiring, thereby improving labor investment efficiency. However, the positive effect of real earnings smoothing on labor investment efficiency weakens as industry concentration and corporate diversification increase. These results suggest that in highly concentrated industries, large firms may overhire skilled, high-wage workers and exacerbate wage inequality, while a high level of diversification can increase managerial complexity and dilute core competencies, thus reducing labor investment efficiency. This study provides evidence that real earnings smoothing functions as a positive signal that mitigates information asymmetry between internal and external information users and contributes to more efficient human resource allocation within firms. Moreover, it implies that managers can optimize human capital investment more effectively by considering environmental factors such as industry structure and the degree of diversification.