Using the data on provincial environmental legislation and Chinese manufacturing firms during 1998-2013, this paper empirically tests the impact of provincial environmental legislation on the firms’ employment growth with a difference-in-difference (DID) model. The results show that after the implementation of environmental legislation, the employment growth of regulated manufacturing firms decreases significantly by 3.07%, and this result is robust to alternative tests. The empirical analysis also indicates that local environmental legislation reduces employment growth mainly via the mediating mechanism of the firm’s entry and exit, export and innovation. Moreover, we find the local environmental legislation has heterogeneous impacts on employment growth in different industries and different regions, and the estimated effect is more obvious in high-pollution industries and areas with strong enforcement. This paper helps assess the impact of Chinese environmental policy on employment and provides important policy implications for improving existing laws and regulations to achieve higher social welfare.