When Taiwanese firms started their foreign investment in 1980, the manufacturing sector of Taiwan was facing drastic structural changes and, at the same time, the employment structure was also facing significant changes. In this study, we divide the employment changes into ”employment change within industry” and ”employment change between industry”, and we find that before 1987 the decreasing labor demand was caused mainly from ”within industry” changes and mainly for unskilled labor jobs. After 1987, there was a greater decrease of labor due to change ”between industry” and for unskilled labor jobs, since lots of Taiwanese firms started to invest in Mainland China. In order to estimate the impact of investment abroad on labor demand in Taiwan, we separate the foreign investment into investment in Mainland China and investment overseas (excluding Mainland China) first, and we apply a data set with a annual data from 1980 to 2002 with 12 industries in the manufacturing sector in Taiwan. Applying a SUR method to estimate the impact of foreign investment on labor demand in Taiwan, we find that investment overseas increase labor demand for skilled labor; however investment in Mainland China decrease labor demand for unskilled labor. Since both types of investment cause labor demand to shift to skilled labor, the result is consistent with our findings for the change of labor demand ”between industry” and ”within industry”.