The Impact of Economic Efficiency on Employment: A Case Study of Mergers & Acquisitions

Abstract

This paper seeks to challenge the present rhetoric used by competition policy makers and enforcers when advancing economic efficiency as a goal of competition policy. The fixation on the promotion of economic efficiency and intense or fierce competition comes at the expense of other sensible social values, such as job creation. This trend of modern competition policy is based on a reductionist assumption about how markets work in practice.

A dogmatic application of competition policy serving economic calculus, rather than the social order, has silently ignored the negative impact of competition on wages and employment. Over the past many years of successful enforcement of competition laws, no attempts have been made to reverse the negative social impact that has been inflicted by fierce and aggressive forms of competition.

By revisiting the classical price and wage efficiency theoretic assumptions, this paper challenges the use of the ‘efficiency’ benchmark at both micro- (industrial organization) and macroeconomic levels. The case study of mergers and acquisitions (M&A) across several sectors of the economy will be used to demonstrate how internal growth and merger-specific efficiencies – some of which include the elimination of labour costs – affect wage efficiency and employment prospects. While 6.5% out of 3.7 million jobs losses as a result of M&A activity during a four-year period does not seem to have created a major macroeconomic imbalance, a closer look at recent M&A trends during 2013-2016 demonstrates that, indeed, job losses far outweigh the balance of job creation, i.e. one newly created job for every 40 job cuts.

This paper challenges the well-established assumption that ‘new jobs replace old jobs’ following a successful merger. This false assumption is basically at odds with the fact that the majority of European Union mergers are approved, even if subject to conditions, leaving an insignificant percentage of mergers blocked since 1990 (24 or 0.3%).

Keywords: competition policy, antitrust, mergers, employment, jobs, inequality

JEL Classification: A14, B21, D00, D41, E24, F15, G34, H21, J30, K00, K21, L4, L44, L52