Buyouts with Payouts: The Impacts of Private Equity on Workers and Owners

Abstract

We link private equity (PE) buyouts to comprehensive U.S. tax data to explore the impacts of PE on employee and firm owner outcomes. We show that, while PE buyouts lead to employment and earnings drops among incumbent employees, the majority of these impacts are driven by outsized effects on owner employees, who realize large capital gains in the buyout year. Many owners leave the labor force, and despite the large liquidity infusion, exhibit little evidence of follow-on entrepreneurship. The remaining employment and wage declines after PE buyouts are concentrated among older, high-wage, managerial, and longer-tenured workers, with relatively precise null impacts on rank-and-file workers, even after add-on acquisitions. This paper shows that ownership is a critical form of worker heterogeneity when considering the incidence of firm-level shocks. Outside of owners and a few highly compensated employees, PE acquisitions have at most small effects on workers