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Economic change can lead to multiple and sometimes conflicting outcomes for workers, employers, and regions. At the center of economic change are the dynamic interactions among diverse workers and firms in specific labor market contexts. This thesis approached those spatial interactions from the perspective of labor market matching, where the different opportunities for workers and firms to match were investigated. This adds to the growing body of literature that seeks to understand what factors are behind the growing regional divergence in earnings and employment, and who is particularly impacted by the uneven labor market changes. 

To this end, the aim of this thesis was to analyze the regional patterns and outcomes for workers and firms in the labor market matching process. Four quantitative studies were conducted using data from Swedish administrative registers from 1995 to 2012. Given that the dynamics of labor market matching are complex, the studies approached the aim from different angles and for different groups of workers. In particular, the outcomes and patterns were investigated in relation to crucial periods for workers and firms, where frictions in labor market matching could potentially have particularly negative effects. The studies investigated earnings, employment, and hiring for young workers in low-paid jobs, for workers displaced by firm closures, and for new firms competing for survival. 

The empirical results indicate the importance of a flexible labor market that facilitates the matching process where individuals' existing competencies can be applied and developed. This is a particular challenge for workers who lose their jobs to establishment closures outside the large regions, since the results show that worse job matches and less productive re-employment opportunities are more common and can have particularly negative consequences in smaller and more peripheral regions. However, even if there are more job opportunities in larger regions, the results suggest the opportunities are not necessarily accessible to everyone. Results indicate that workers in low-wage jobs do not benefit from a boost in earnings in larger regions, which may put them in a precarious situation considering the higher cost of living in those regions. Lastly, the thesis highlights the importance of not only individual human capital in determining a job match, but also its relational dimension which captures how well different workers’ skills are matched to one another in the workplace. This was found to be associated with individual earnings recovery after plant closure and new firm survival. The findings call for policies that carefully combine supply- and demand-side approaches in economic development.