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The Effect of Takeovers on the Employment and Wages of Central-Office and Other Personnel

  • Frank Lichtenberg
  • Donald Siegel

This paper presents evidence based on establishment-level Census Bureau data concerning the effects of ownership change on the employment and wages of both central-office workers and manufacturing plant employees. We find that central offices that changed owners between 1977 and 1982 had substantially lower -- about 16% lower -- employment growth during that period than central offices not changing owners. (There was, however, no significant difference in the growth of R&D employment.) In contrast, employment growth in production establishments changing owners was only 5% lower than it was in production establishments not changing owners. (The relative employment decline in production establishments changing owners occurred in the 2 or 3 years before the takeover; after the takeover, employment recovered a bit, but not enough to offset the previous decline.) This implies that the ratio of central-office to plant employees declines about 11% in firms changing owners: about 7.2 administrators per 1000 plant employees are eliminated. These findings are consistent with the view that reduction of administrative overhead is an important motive for changes in ownership. Failure to account for reductions in central-office employment results in a substantial (about 40%) underestimate of the productivity gains associated with ownership change. We also provide evidence concerning the relationship between firm size and administrative-intensity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2895.

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Date of creation: Mar 1989
Date of revision:
Publication status: published as "The Effect of Ownership Change on the Employment and Wages of Central-Office and Other Personnel," Journal of Law and Economics, Vol. XXXIII, pp. 383-408, (October 1990).
Handle: RePEc:nbr:nberwo:2895
Note: LS
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  1. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  2. Frank R. Lichtenberg & Donald Siegel, 1987. "Productivity and Changes in Ownership of Manufactoring Plants," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 643-684.
  3. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  4. Bronwyn H. Hall, 1987. "The Effect of Takeover Activity on Corporate Research and Development," NBER Working Papers 2191, National Bureau of Economic Research, Inc.
  5. Beckmann, Martin J., 1977. "Management production functions and the theory of the firm," Journal of Economic Theory, Elsevier, vol. 14(1), pages 1-18, February.
  6. Charles Brown & James L. Medoff, 1987. "The Impact of Firm Acquisitions on Labor," NBER Working Papers 2273, National Bureau of Economic Research, Inc.
  7. Lichtenberg, Frank R, 1988. "Estimation of the Internal Adjustment Costs Model Using Longitudinal Establishment Data," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 421-30, August.
  8. Shleifer, Andrei & Vishny, Robert W, 1988. "Value Maximization and the Acquisition Process," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 7-20, Winter.
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