We investigate the employment consequences of earnings management. Using audit firm consolidation as an exogenous shock impacting earnings management, we find a positive casual effect of firm-level earnings management on employment growth. The effect is concentrated in privately owned enterprises and firms with higher operational risk, consistent with earnings management affecting labor dynamics by influencing employees’ perceptions of job security and subsequent career decisions. We further document a crowding out effect in local labor market, where a firm’s earnings management negatively influences the employment growth of local peer firms.