Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Private Equity and Employment
    16 Nov 2011Working Paper Summaries

    Private Equity and Employment

    by Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner and Javier Miranda
    Is there truth to the claim that leveraged buyouts bring huge job losses? In this paper, the authors examine employment responses to US private equity buyouts at a much more granular level than earlier research, exploiting a much larger sample of transactions, a more extensive set of controls, and a novel ability to track outcomes at firms and establishments (e.g., individual factories and offices). They also exploit the strengths of their data to explore new questions about private equity's role in the creative destruction process and its impact on restructuring activity inside target firms. Overall, they find that private equity buyouts catalyze the creative destruction process in the labor market as measured by gross job flows and the purchase and sale of business establishments, with only a modest net impact on employment. Research by Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, Javier Miranda. Key concepts include:
    • While private equity transactions dramatically increase the turnover of workers-both hiring and layoffs, acquisitions and divestitures-the net effect of the increased activity is modest.
    • Employment responses to private equity buyouts vary considerably across industries and by type of transaction.
    • The largest employment losses at targets relative to controls occur in public-to-private transactions. In contrast, in most other firms the effect is neutral or even positive.
    • Future research should investigate experiences outside the United States. While US private equity outcomes are especially interesting because of the industry's large size and maturity, the impact of private equity might differ across environments depending on corporate governance, financial depth, legal institutions, and economic development.
    LinkedIn
    Email

    Author 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 US 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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: September 2011
    • HBS Working Paper Number: NBER 173999
    • Faculty Unit(s): Finance; Entrepreneurial Management
      Trending
        • 31 Jan 2023
        • Research & Ideas

        It’s Not All About Pay: College Grads Want Jobs That ‘Change the World’

        • 17 Jan 2023
        • In Practice

        8 Trends to Watch in 2023

        • 25 Feb 2019
        • Research & Ideas

        How Gender Stereotypes Kill a Woman’s Self-Confidence

        • 27 Jan 2023
        • Op-Ed

        Have We Lost Sight of Integrity?

        • 02 Feb 2023
        • Research & Ideas

        Why We Still Need Twitter: How Social Media Holds Companies Accountable

    Josh Lerner
    Josh Lerner
    Jacob H. Schiff Professor of Investment Banking
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Economics

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College