Private equity buyouts lead to worse pay for workers

Private equity has never enjoyed a glowing public image. And it is likely to be damaged further following new research that shows what happens to workers’ pay.

A new study titled The Economic Effects of Private Equity Buyouts reviewed around 6,000 private equity deals between 1980 and 2013. One of the key findings shows that the average pay per worker falls 1.7% after a buyout.

When private equity firms target publicly-listed firms, jobs shrink by 13% over two years. However, they expand by the same amount when the private equity firm buys an unlisted company.

Regardless of public or private company, labour productivity jumps by an average of 8% over two years, according to the study.

Private equity buyouts have always been a sensitive subject, and lead to heightened uncertainty among workers over the future of their jobs. For those who keep their jobs it may lead to a cut in salary even though productivity has improved, this new report shows.

“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 said.