We find evidence that workforce educational diversity promotes entrepreneurial behavior of employees as well as the formation of new firms, whereas diversity in demographics hinders transitions to self-employment. Ethnic diversity favors entrepreneurship in financial and business services.

I develop a model where workers decide how hard to look for a job via formal and informal search channels. The intensity of formal search determines an individual’s arrival rate of offers. The strength of investment in informal search translates into a job contact network in which job offers...