Private Equity, Jobs, and Productivity
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.
We thank Chris Allen, Paul Bailey, Ronald Davis, and Sarah Woolverton for research assistance and Per Stromberg for data on the classification of private equity transactions. Francesca Cornelli, Per Stromberg, three anonymous referees, several practitioners, and numerous participants in conferences and research seminars provided many helpful comments. The World Economic Forum, Kauffman Foundation, Harvard Business School's Division of Research, Initiative on Global Markets at the University of Chicago Booth School of Business, and the US Census Bureau provided generous financial support for this research. One of the authors has advised institutional investors in private equity funds, private equity groups, and governments designing policies relevant to private equity. The analysis and results herein are attributable to the authors and do not necessarily reflect concurrence by the US Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. All errors and omissions are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
In compliance with the requirement of the Journal’s disclosure policy, I would like to state that I, Javier Miranda, am an employee of the U.S. Census Bureau. I have received no direct financial support from any organization but I am one of the Principal Investigators on the grant from the Kauffman Foundation that we note in the acknowledgements section. The support from the Kauffman Foundation is directly related to this research as they have supported the development of the data infrastructure used in this paper as well as research analysis related to the topics in this paper. We are also using proprietary data in this paper housed at the U.S. Bureau of the Census. As we note in the acknowledgements section “All results have been reviewed to ensure that no confidential information is disclosed.”
Steven J. Davis & John Haltiwanger & Kyle Handley & Ron Jarmin & Josh Lerner & Javier Miranda, 2014. "Private Equity, Jobs, and Productivity," American Economic Review, American Economic Association, vol. 104(12), pages 3956-90, December. citation courtesy of