Based on the data from 284 cities in China from 2006 to 2021, this paper empirically analyzes the impact of the digital economy on urban resource allocation efficiency and labor market displacement effects. The findings indicate that the development of the digital economy significantly improves urban resource allocation efficiency, but it also leads to a displacement effect in the labor market. Furthermore, promoting industrial upgrading is an important pathway through which the digital economy enhances resource allocation efficiency. This paper explores the influence of the digital economy, providing insights into improving resource allocation efficiency and alleviating labor employment pressure.