The primary objective of this study is to examine the extent to which tourism agglomeration density contributes to tourism labor productivity across the provinces of China. This objective is achieved by analyzing a panel dataset from 2000 to 2011. Our estimation results indicate that tourism industry agglomeration density and per capita capital stock are important determinants of labor productivity and that the benefits of locating in dense areas can offset the associated costs for tourism firms. However, diverse industrial circumstances have a negative effect on tourism labor productivity of tourism firms, such as star‐rated hotels, travel agencies, scenic spots, transportation enterprises and other firms. These results are robust for a large series of empirical tests. Copyright © 2015 John Wiley & Sons, Ltd.