Mergers and Acquisitions, Local Labor Market Concentration, and Worker Outcomes

Abstract

Thousands of establishments employing millions of workers change ownership each year, sometimes leading to large changes in local labor market concentration that potentially increase labor market power. Using matched employer-employee data from the U.S., this paper estimates the direct and indirect effects of mergers and acquisitions (M&As) and resulting local labor market concentration changes on worker outcomes. To measure local concentration, I derive an index of concentration that uses job-to-job mobility patterns to incorporate information on substitutability across industries. Causal effects are estimated using a matched difference-in-differences design and cross-sectional variation in the predicted impacts of M&As on local concentration. In mergers that have little impact on local labor market concentration, annual earnings for workers in M&A firms remain stable after the ownership change. In sharp contrast, earnings fall by 2 percent for M&A workers in mergers that increase local labor market concentration, with the largest effects in already concentrated markets. These patterns are similar in tradable industries, suggesting the effects are not driven by changes in product market power. Mergers generating the largest concentration changes also generate negative spillovers on other firms in the same labor market, with an implied elasticity of earnings with respect to local concentration equal to -0.22. Viewed through the lens of a standard Cournot model, the results imply local concentration depresses wages by about 4-5 percent relative to a fully competitive benchmark.