Monday, July 7, 2014
Once more into the breach on this topic - the impact of private equity on jobs at target firms. Economists Stephen Davis, Josh Lerner and others have released a paper, Private Equity, Jobs, and Productivity. Here's the abstract:
Private equity critics claim that leveraged buyouts bring huge job losses and few gains in operating performance. To evaluate these claims, we construct and analyze a new dataset that covers U.S. buyouts from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing to controls defined by industry, size, age, and prior growth. Buyouts lead to modest net job losses but large increases in gross job creation and destruction. Buyouts also bring TFP gains at target firms, mainly through accelerated exit of less productive establishments and greater entry of highly productive ones.
Talk about burying the lede... OK, from the paper, some of their conclusions:
Our establishment-level analysis yields three main findings: First, employment shrinks more rapidly, on average, at target establishments than at controls after private equity buyouts. The average cumulative difference in favor of controls is about 3% of initial employment over two years and 6 percent over five years. Second, the larger post-buyout employment losses at target establishments entirely reflect higher rates of job destruction at shrinking and exiting establishments. In fact, targets exhibit greater post-buyout creation of new jobs at expanding establishments. Adding controls for pre-buyout growth history shrinks the estimated employment responses to private equity buyouts but does not change the overall pattern. Third, earnings per worker at continuing target establishments fall by an average of 2.4 percent relative to controls over two years post buyout.
But it's not all bad news. If one looks at firm-level job creation vs. establishment-level job creation, the authors find net positive growth as target firms tend to add net jobs at greenfield establishments. Give it a read. It's an AER paper, so it's short.