This paper examines the transition from employees to entrepreneurs and their subsequent innovation behaviors using data from the China Family Panel Survey(CFPS) and the Enterprise Survey of Innovation and Entrepreneurship in China(ESIEC). The analysis reveals that entrepreneurs’innovation activities are positively correlated with their research and management skills from previous occupations, but not with their external social skills. Furthermore, among the population of Chinese employees, individuals with higher research and management skills are less likely to become entrepreneurs, whereas those with stronger external social skills are more likely. Finally, improving the business environment significantly increases the entrepreneurial likelihood among individuals with higher research and management skills, which could also help explain the differences in entrepreneurial skill structures between China and the United States. From the micro perspective of the employee-employer transition among individuals with different occupational skill sets, this paper analyzes the mechanisms by which the business environment affects the overall innovation level in the economy, offering insights for policymaking aimed at accelerating the development of new quality productive forces.