The objectives of this paper are to analyze the effect of government R&D expenditure on employment in the Korean manufacturing sector in which employment is rapidly declining. According to the results of our empirical analysis, government R&D expenditure decreases the level of employment in Korean manufacturing sector in short term period, but it has positive effect on employment by compensation effect in the middle and long term period. Second, the effect of private R&D expenditure on job creation is three times larger than that of government R&D expenditure. Third, costs of labor and capital has negative effect on employment. This study is believed to help understanding the relation between R&D expenditure and employment, and providing policy implications of how to plan and manage government R&D expenditure as a tool of job creation.