Being the basic and leading industry of the national economy, distribution industry plays an important role in creating jobs. Sustainable foreign capital entry has tremendous shocks to China's distribution industry, thereby exerting very complex impacts on the employment in this industry. This paper theoretically discusses the direct and indirect effects of foreign capital entry on the employment in distribution industry, and verifies its total impact. Overall, the results of panel threshold regression model show that, FDI of distribution industry has a quasi "funnel-shaped" nonlinear effect on the employment in this industry:when the amount of FDI is less than 27.016 billion yuan, there is a crowding-out employment effect; when the amount of FDI is between 27.016 billion and 518.228 billion, there is no significant effect; and when the amount of FDI is above 518.228 billion, there is a positive effect in boosting the employment. Through the test of the effect of foreign capital entry on the employment in distribution industry, it further points out that foreign capital entry in distribution industry has effects on the employment mainly through commercial agglomeration effect, market competition effect, labor redistribution effect and circulation channel reconstruction effect, and the employment effect of foreign capital entry in distribution industry stems from the effect on domestic wholesale industry. It argues that we'd better attach importance to the "employment traps" of foreign capital entry in distribution industry, and during quite a long time, there is a negative crowing-out employment effect in most areas of China in distribution industry. This conclusion has certain significance to the attitudes and policies for attracting foreign capital in different regions, especially for the small cities and counties.