We examine whether the debt pressure of local governments prompts them to transfer part of their social responsibilities to local firms, through the lens of corporate employment in China. First, we find that when local government debt (LGD) is higher, local firms are less likely to cut down labor costs when their sales decrease, indicating greater labor cost stickiness. Second, we demonstrate that this is due to the “responsibility-transferring” effect, i.e., when confronted with heavier debt burdens, local governments are likely to transfer part of social responsibilities to local firms by restricting their worker layoffs. Consistent with this argument, we find that the effect of LGD on labor cost stickiness is more pronounced for state-owned enterprises and politically connected firms, in regions with lower marketization levels and higher government fiscal deficits, as well as when regional unemployment rates, macroeconomic uncertainty, and political risk are higher. Third, we show that this “responsibility-transferring” effect leads to reduced social expenditures by local governments, easing their pressure amidst high LGD levels. However, such government intervention may not necessarily align with the optimal interests of firms, as those with stickier labor costs have lower productivity and market value in the subsequent year, even though local governments reciprocate them with some subsidies. Our study suggests that LGD not only adversely impacts private sector financing through the “crowding-out” effect but also directly influences firm operating efficiency through the “responsibility-transferring” effect.