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Private Equity and Employment

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Author Info

  • Steven Davis
  • John Haltiwanger
  • Ron Jarmin
  • Josh Lerner
  • Javier Miranda

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.

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File URL: ftp://ftp2.census.gov/ces/wp/2008/CES-WP-08-07R.pdf
File Function: Revised version, 2011
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File URL: ftp://ftp2.census.gov/ces/wp/2008/CES-WP-08-07.pdf
File Function: First version, 2008
Download Restriction: no

Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 08-07r.

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Length: 51 pages
Date of creation: Mar 2008
Date of revision: Oct 2011
Handle: RePEc:cen:wpaper:08-07r

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Related research

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

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References

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  1. Javier Miranda & Alfred Nucci & Steven J. Davis & John Haltiwanger & Ron S. Jarmin & C.J. Krizan & Kristin Sandusky, 2006. "Measuring the Dynamics of Young and Small Businesses: Integrating the Employer and Nonemployer Universes," Working Papers 06-04, Center for Economic Studies, U.S. Census Bureau.
  2. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
  3. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  4. Wright, Mike & Thompson, Steve & Robbie, Ken, 1992. "Venture capital and management-led, leveraged buy-outs: A European perspective," Journal of Business Venturing, Elsevier, vol. 7(1), pages 47-71, January.
  5. Lichtenberg, Frank R. & Siegel, Donald, 1990. "The effects of leveraged buyouts on productivity and related aspects of firm behavior," Journal of Financial Economics, Elsevier, vol. 27(1), pages 165-194, September.
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  8. Richard Harris & Donald S. Siegel & Mike Wright, 2003. "Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom," Rensselaer Working Papers in Economics 0304, Rensselaer Polytechnic Institute, Department of Economics.
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  11. Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
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  14. Muscarella, Chris J & Vetsuypens, Michael R, 1990. " Efficiency and Organizational Structure: A Study of Reverse LBOs," Journal of Finance, American Finance Association, vol. 45(5), pages 1389-1413, December.
  15. Achleitner, Ann-Kristin & Klöckner, Oliver, 2005. "Employment contribution of private equity and venture capital in Europe," CEFS Working Paper Series 2005-05, Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München.
  16. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
  17. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
  18. John C. Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," NBER Working Papers 16300, National Bureau of Economic Research, Inc.
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