Private Equity and Workers: Modeling and Measuring Monopsony, Reallocation, and Trust
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Series
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Speaker(s)Kyle Herkenhoff (University of Minnesota, United States)
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FieldMacroeconomics
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LocationTinbergen Institute Amsterdam, room 1.01
Amsterdam -
Date and time
June 12, 2025
16:00 - 17:15
We measure the real
effects of private equity buyouts on worker outcomes by building a new database
that links transactions to matched employer-employee data in the United States.
To guide our empirical analysis, we derive testable implications from three
theories in which private equity managers alter worker outcomes: (1) exertion
of monopsony power, (2) breach of trust of implicit contracts with workers, and
(3) efficient reallocation of workers across plants. We do not find any
evidence that private equity-backed firms vary wages and employment based on
local labor market power proxies. Moreover, layoffs and wage losses are very
similar across occupation and employee characteristics, suggesting a rejection
of the breach of trust hypothesis. We find strong evidence that private equity
managers downsize less productive plants relative to productive plants while
simultaneously reallocating high-wage workers to more productive plants. We
conclude that post-buyout employment and wage dynamics are consistent with
professional investors providing incentives to increase productivity and
monitor the companies in which they invest.
Joint work: Josh
Lerner, Gordon M. Phillips, Francisca Rebelo, and Benjamin Sampson