This paper studies the employment generating effects during tourism industrial upgrading process in China from 2000 to 2014. An econometric model is built up to measure respectively the employment generating and destruction effects of different tourism sectors during this upgrading process. The results show that: (1) The total employment generating effects of China’s tourism industry during the period studied is positive and mainly comes from the scale expanding effects and structural changing effects, instead of functional upgrading effect. (2) There lies the tradeoff between productivity gains and job growth, indicating the existence of Baumol’s cost disease in the tourism industry. (3) Due to the rocketing price of real estate assets, a dilemma emerges between the employment creation of the accommodation sector and the growth of the total output of tourism. Results suggest that the Chinese tourism industrial upgrading should go toward the integration of quality and comprehensive optimization of landscape aesthetics and experiencing design.