This study examines the impact of artificial intelligence (AI) on manufacturing employment in China using panel data from 30 provinces over the period 2006 to 2022. The research employs a two-way fixed-effect model and instrumental variable method. Contrary to the traditional belief that machines replace humans, the study finds that AI technology increases the total number of jobs available. This is attributed to more efficient labor productivity, capital deepening, and specialized division of labor through digital technology integration. AI significantly enhances the market size and production scale of manufacturing enterprises, leading to substantial job creation. The positive impact of AI on employment is evident in labor-intensive industries and for female workers. Regions with better digital infrastructure show stronger job creation effects. The study also highlights that the geographical agglomeration mode of traditional industries is evolving under digital technology, and virtual agglomeration plays a crucial mediating role in job creation. These findings alleviate concerns about AI crowding out jobs and encourage the utilization of AI technology to improve employment in the digital economy era.This study examines the impact of artificial intelligence (AI) on manufacturing employment in China using panel data from 30 provinces over the period 2006 to 2022. The research employs a two-way fixed-effect model and instrumental variable method. Contrary to the traditional belief that machines replace humans, the study finds that AI technology increases the total number of jobs available. This is attributed to more efficient labor productivity, capital deepening, and specialized division of labor through digital technology integration. AI significantly enhances the market size and production scale of manufacturing enterprises, leading to substantial job creation. The positive impact of AI on employment is evident in labor-intensive industries and for female workers. Regions with better digital infrastructure show stronger job creation effects. The study also highlights that the geographical agglomeration mode of traditional industries is evolving under digital technology, and virtual agglomeration plays a crucial mediating role in job creation. These findings alleviate concerns about AI crowding out jobs and encourage the utilization of AI technology to improve employment in the digital economy era.