With firm data and a regional perspective this study contributes with new perspectives on job polarization and firm performance. We investigate changes in e.g., employment, revenues, profits and wage costs for low, mid- and high skilled firms in urban and rural areas in Sweden 2003-2019.

Job polarization is documented when using employment data, but a corresponding polarization in revenues is less evident. As for the US, job polarization is mainly an urban phenomenon. In particular, the increase in low skilled employment (at the expense of mid-skilled employment) is solely found in the densest region: Stockholm. On the other hand, the increase in high skilled employment is relatively low in Stockholm (despite an increase in the revenue share).

The development of profits - which have increased substantially during the period - is also related to differences in the urban-rural skill structure. Because profits increase more in high skilled industries - predominantly located in denser areas - profits grow much more in urban areas than in rural areas. A decreasing wage share is the main explanation to increasing profits. Plausibly, slow wage growth for high skilled industries is related to the tax system, and particular, a change in taxation splitting rules cause labour income to be transformed to capital income. In particular, we see that newly established firms generate high profits and pay high dividends (instead of high wages to high skilled labour).