M&As, Employee Costs and Labor Reallocation

57 Pages Posted: 20 Apr 2020 Last revised: 17 Apr 2021

See all articles by Spyridon Lagaras

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School

Date Written: January 24, 2020

Abstract

I study the earnings, employment, and reallocation effects of mergers on incumbent employees. Using detailed employer-employee administrative data linked with manually collected information on merger activity in Brazil, I find mergers are associated with large and persistent earnings declines for employees in target firms. These declines are entirely explained by employment losses from displacement in the short run and wage losses from reallocation in the long run. Losses of firm-specific rents account for a substantial part of wage losses with employees transitioning to lower-paying, lower-quality firms. The effects increase with the level of pre-merger firm-specific rents. Finally, I provide evidence that the effects are concentrated among high-rent and low-skilled employees. Taken together, my findings highlight the role of costly reallocations as the primary factor contributing to merger costs for employees, and point to wealth transfers from low-skilled and excessively paid employees as a potential motivation for mergers.

Keywords: M&As, Displacement, Labor Mobility, Employer Fixed Effects

JEL Classification: G34, J2, J3

Suggested Citation

Lagaras, Spyridon, M&As, Employee Costs and Labor Reallocation (January 24, 2020). Available at SSRN: https://ssrn.com/abstract=3560620 or http://dx.doi.org/10.2139/ssrn.3560620

Spyridon Lagaras (Contact Author)

University of Pittsburgh, Katz Graduate Business School ( email )

3950 Roberto Clemente Dr
334 Mervis Hall
Pittsburgh, PA Allegheny 15260
United States

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