Related factors for measuring urban agglomeration effect were studied firstly. Then, panel data of 283 prefecture level cities of China were collected to analyze the effect of agglomeration on employment density. Besides, fixed effect model was applied to analyze static panel data, and two-step generalized method of moments (GMM) estimator was employed to analyze dynamic panel data. Results reveal that per capita regional GDP, public medical care level, and population mobility have significant effect on employment density. Therefore, there exists effect of agglomeration economy in prefecture level cities of China in the current stage.