Employment diversification has traditionally been seen as beneficial for local economies. Most of the previous research on diversity and diversification has been conducted in the North American context where a positive association between diversification and growth has been observed. This paper explores the diversification process for 150 Job‐Centre Travel‐to‐Work Areas (JCTWAs) which make up what is called here the British urban system. Regression analysis is used to highlight that there is no evidence for the trends previously found in North America, in fact the opposite appears to be true. From 1978 to 1991 deindustrialization was seen to be a contributing factor to diversification and the associated decline of employment. Those centres which displayed growth from 1978 to 1991 were apparently those places which became more sectorally specialized, albeit from a relatively diverse initial position.