Oct. 14, 2019, 11:52 a.m. EDT

Private-equity deals depress worker wages, study finds

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By Steve Goldstein, MarketWatch


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Toys R Us, owned by the private-equity giant Bain Capital, filed for bankruptcy protection in 2017. Private-equity success stories include Staples.

Private-equity deals result in worse pay for workers, and, depending on whether the buyout target was public or not, fewer jobs, according to a newly published study.

The study of some 6,000 private-equity deals between 1980 and 2013 finds that the average pay per worker falls 1.7% after buyouts.

The impact on employment is mixed. When private-equity firms target publicly traded firms, jobs shrink by 13% over two years, but expand by the same percentage when private-equity firms buy unlisted companies.

Labor productivity jumps by an average of 8% over two years, the study adds.

These leveraged buyouts have received greater scrutiny from politicians recently, with presidential candidate Elizabeth Warren among the legislators seeking to curb the industry. Mitt Romney, now a Utah senator, was attacked for his former role at Bain Capital during the 2012 presidential campaign.

Read: Elizabeth Warren targets ‘vampires’ in attack on private-equity industry

The authors of the study say their findings cast doubt on what they call a one-size-fits-all policy response.

“This mix of consequences presents serious challenges for policy design, particularly in an era of slow productivity growth (which ultimately drives living standards) and concerns about economic inequality,” the authors say.

The authors were Steven Davis of the University of Chicago, John Haltiwanger of the University of Maryland, Kyle Handley and Ben Lipsius of the University of Michigan, Josh Lerner of Harvard Business School, and Javier Miranda of the Census Bureau.

The authors say the Harvard Business School’s research division, the Private Capital Research Institute, the Ewing Marion Kauffman Foundation, and the Smith Richardson Foundation provided support for the research.

Read on: Sophos shares soar 37% after $3.8 billion offer from U.S. buyout group

Steve Goldstein is MarketWatch markets editor for Europe. Follow him on Twitter: @MKTWgoldstein.

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