Based on household and community panel data from China Household Financial Survey in 2015 and 2017, this paper studies the effect and mechanism of new agricultural operators on farmers’ non-agricultural employment using a difference-in-differences (DID) estimation model.It is found that new agricultural operators can increase the probability of farmers participating in non-agricultural employment by about 4 percent with no significant impact on entrepreneurship. Among all kinds of new agricultural operators, agricultural cooperatives and family farms have significant driving effect while specialized farmers and agricultural enterprises have no such effect. Further studies show that new agricultural operators can directly improve non-agricultural employment by transferring agricultural labor force to local employment but have little effect on releasing more agricultural labor force by promoting substitution of agricultural labor force with agricultural capital investment. Meanwhile, new agricultural operators can further encourage agricultural labor force to participate non-agricultural employment through facilitating agricultural land transfer. The conclusion of this paper shows that the new agricultural operators can generate significant factor agglomeration externalities in promoting non-agricultural employment of smallholders.