As China continues to ascend in the global value chain, attention has been drawn to whether it will face issues of“employment substitution”and“skill bias in the labor force.”At the same time, the country is undergoing industrial transformation represented by digitalization. Against this backdrop, this paper decomposes the export value-added rate to thoroughly examine how industrial digitalization affects the foreign demand-embedded employment of workers with different skill levels, amid changes in the position of production division of labor. The findings are as follows: First, in the manufacturing sector, digitalization intensifies the substitution effect of the domestic value-added rate in exports on foreign demand-embedded employment, whereas in the producer services sector, digitalization strengthens the creation effect of the domestic value-added rate in exports on foreign demand-embedded employment. Second, the domestic value-added rate in exports exhibits a“skill bias”in its impact on foreign demand-embedded employment: the substitution effect primarily affects low-and medium-skilled workers, with a more pronounced impact on low-skilled labor, while the creation effect is concentrated on high-skilled labor. Third, further decomposition of the export value-added rate reveals that the employment substitution effect is more prominent in industries with lower positions in the division of labor, whereas the employment creation effect diminishes as the division of labor position rises. Moreover, in the manufacturing sector, as an industry’s division of labor position improves, industrial digitalization can gradually transform the substitution effect on foreign demand-embedded employment into a creation effect. In contrast, in the producer services sector, as the division of labor position rises, digitalization further enhances employment creation for high-and medium-skilled workers while mitigating employment substitution for low-skilled workers.