M&As, Employee Costs and Labor Reallocation

107 Pages Posted: 20 Apr 2020 Last revised: 9 Jun 2022

See all articles by Spyridon Lagaras

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School

Date Written: January 24, 2019

Abstract

Mergers are associated with large and persistent earnings declines for incumbent employees. Using employer-employee administrative data linked with information on merger activity in Brazil, I find earnings declines are entirely driven by employees who exit target firms and explained by displacement in the short run and wage declines in the long run. Losses of firm-specific wage premiums account for the long-lasting adverse outcomes with employees transitioning to lower-paying, lower-quality firms. Reallocation costs are concentrated among low-skilled and "overplaced employees." I argue that rent extraction from employees in firms paying high premiums is a potential source of efficiency gains in mergers.

Keywords: M&As, Displacement, Labor Mobility, Employer Fixed Effects

JEL Classification: G34, J2, J3

Suggested Citation

Lagaras, Spyridon, M&As, Employee Costs and Labor Reallocation (January 24, 2019). Available at SSRN: https://ssrn.com/abstract=3560620 or http://dx.doi.org/10.2139/ssrn.3560620

Spyridon Lagaras (Contact Author)

University of Pittsburgh, Katz Graduate Business School ( email )

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Pittsburgh, PA Allegheny 15260
United States

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