Private Equity, Productivity, and Inequality

Sorry for the light posting – I have been traveling for job interviews. Here’s an interesting paper that I heard about recently. It shows that  private equity buyouts bring productivity improvements and lower payrolls on average.

Here is the full 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 them to controls defined by industry, size, age, and prior growth. Relative to controls, employment at target establishments falls 3 percent over two years post buyout and 6 percent over five years. However, target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. Considering all adjustment margins, relative net job loss at target firms is a modest one percent of employment over two years post buyout. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 14 percent of employment over two years. Buyouts also bring TFP gains at target firms and reductions in earnings per worker. Productivity gains arise mainly from an accelerated exit of less productive establishments and greater entry of more productive ones – that is, from a directed reallocation of jobs within target firms. 

 

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About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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