Abstract: Innovation is the driving force for economic growth sustainability. The employment of enterprises are the cornerstone of maintaining social stability. Based on the background of development and transformation for Chinese economic. We distinguish product innovation from process innovation, and use a mathematical model to separate the direct and indirect approaches to the impact of innovation on the employment growth in small and medium-sized manufacturing enterprises. By using the World Bank’s survey data, which focus on the operating environment of small and medium-sized enterprises in China, this study empirically examined the impact of SMEs' technological innovation on their employment growth. The results of the study indicate that technological innovation will not only affect the employment growth of SMEs through the four direct ways which called “price effect” and “productivity effect” of process innovation and “market effect” and “substitution effect” of product innovation, but also through the indirect route which called “advancement of employee skill structure”. The difference from foreign studies is that, for small and medium-sized manufacturing companies in China, the “productivity effect” of process innovation and the “substitution effect” of product innovation are the main ways to hinder their employment growth. At the same time, unlike domestic research, the "advancement of employee skill structure" is an important way for technological innovation to promote the growth of employment for Chinese SMEs. Further research found that the impact of technological innovation on employment growth in low-tech manufacturing companies is more sensitive. From the micro level, the results of this study confirm the influence of skill-biased technical progress on the employment of Chinese SMEs, and it provided a policy basis for alleviating the structural problems of “employment difficulties” and “recruitment difficulties” in China.