This study addresses how diversity in the local sector structure is associated with employment development across different municipality types (urban, intermediate and rural). While this relationship has been studied primarily from an urban perspective, increasing economic diversity has gained traction as a policy tool, particularly in rural areas. Given the diverse roles of municipalities in the urban hierarchy, the analysis explicitly identifies the impact of other nearby local economies. It is found that nearby dense and diverse local economies are indeed important for employment growth for all three types of municipality. Diversity in a given municipality has no or even a negative relationship with growth.