Private Equity and Employment

Abstract

The impact of private equity on employment outcomes arouses considerable controversy. Critics claim that private equity buyouts bring huge job losses, while private equity groups claim large employment gains. To address the issue, we construct and analyze a new dataset that overcomes many of the limitations in previous research. We examine U.S. private equity transactions from 1980 to 2005, following 4,500 target firms and more than 200,000 establishments before and after acquisition by private equity groups. We compare employment outcomes at target firms and their establishments to controls that have no private equity ties and that are similar in terms of industry, size and age. Our key findings are as follows: (1) Employment declines at target establishments relative to controls in the wake of private equity buyouts. (2) Target establishments create roughly as many new jobs as control establishments post-buyout, but they destroy old jobs at a much faster pace. (3) However, target firms also create new jobs in new establishments at a much faster pace than control firms. Once we account for new establishments opened post-buyout, the net job loss at target firms relative to controls is about 3-4% of initial employment. (4) The sum of gross job creation and destruction rates is much higher at target firms than at controls in the wake of private equity buyouts. (5) These effects differ considerably across broad industry groups and between public-toprivate and private-to-private transactions. Taken together, our results suggest that private equity groups act as a catalyst for creative destruction in the labor market, and that their employment effects vary greatly by sector and type of target.