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Private Equity and Employment

51 Pages Posted: 26 Mar 2008 Last revised: 13 Jan 2015

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER)

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Ron S. Jarmin

U.S. Census Bureau

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Javier Miranda

U.S. Census Bureau - Center for Administrative Records Research and Applications

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2011

Abstract

Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3 percent over two years post buyout and 6 percent over five years. The job losses are concentrated among public-to-private buyouts, and transactions involving firms in the service and retail sectors. But target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. When we consider these additional adjustment margins, net relative job losses at target firms are less than 1 percent of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13 percent of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms.

Keywords: Private Equity, Buyouts, Leverage, Job Loss, Job Creation, Employment Dynamics

JEL Classification: D22, G34, L25, M54

Suggested Citation

Davis, Steven J. and Haltiwanger, John and Jarmin, Ron S. and Lerner, Josh and Miranda, Javier, Private Equity and Employment (October 1, 2011). US Census Bureau Center for Economic Studies Paper No. CES-WP-08-07R. Available at SSRN: https://ssrn.com/abstract=1107175 or http://dx.doi.org/10.2139/ssrn.1107175

Steven J. Davis

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Ron S. Jarmin

U.S. Census Bureau ( email )

4700 Silver Hill Road
Washington, DC 20233
United States

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Javier Miranda

U.S. Census Bureau - Center for Administrative Records Research and Applications ( email )

4700 Silver Hill Road
Washington, DC 20233
United States

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