M&As, Employee Costs and Labor Reallocation

Abstract

I study the impact of M&As on labor market outcomes of employees in target firms. Using a matched employer-employee dataset linked with hand-collected data on M&A activity in Brazil, I estimate the magnitudes of employee costs and document the underlying sources of earnings changes in the post-merger period. I find that M&As are associated with large and persistent earnings declines for employees in target firms, which are largely explained by employment losses from displacement and wage losses from reallocation. Declines in employer wage premiums in the post-merger period account for the majority of wage losses, with 47% of displaced employees transitioning to lower-wage firms. Finally, I provide evidence that the effects are concentrated on employees with lower skills, and increase with the level of firm-specific human capital. Taken together, my findings imply that the personal costs of M&As to employees are large and long-lasting, and highlight the role of displacement and loss of firm-specific wage premiums as the primary contributing factors of earnings declines in the post-merger period.

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

JEL Classification: G34, J2, J3