Merger and acquisition (M&A) activity represents an increasingly important phenomenon in many countries. At the same time, antitrust enforcement in M&A cases has become increasingly lenient over time. The impact of M&As on product market concentration, product market power, prices, and consumer welfare has received much attention in academic and policy debates. Recently, concerns about the lack of competition in labor markets and the impact of M&A activity on labor market concentration have also been raised in both policy debates and economic research.
In recent work we show that even mergers that are unlikely to increase product market or labor market concentration can have large, long-term welfare impacts on the workers of targeted companies. Using rich administrative data from the Netherlands, our analysis matches firms targeted by takeovers (targeted firms) to control firms that have not participated in any consolidation activity during our study period. We then compare outcomes between workers in the two types of firms, looking at employment, earnings, and total income in each type of firm before and after a takeover.
Workers in targeted firms experience reductions in the amount of work that they perform. They are 8.5% less likely to be retained in the firm, and if they are, they work 7.3% fewer hours at the consolidated firm compared to workers in control firms. These employment reductions translate into income losses: workers at targeted firms have 2.6% lower labor income and 1.9% lower total income, with total income including government benefits which make up part of the lost earnings. Thus, the comparatively generous social insurance and safety net programs of the Netherlands only partially compensate for the decrease in labor income. These effects are large in magnitude and persistent: even four years after the event, workers in targeted firms have on average 2.8% less labor market income (from any firm) and 2.3% less total income. These effects are not driven by lower wages.
Takeover-induced job losses are driven by labor restructuring. We identify two types of workers who are harmed most: over-placed workers—workers at the targeted firms who have higher-than-expected pay relative to their education, experience, and so on; and duplicative workers, workers who have similar skills to the workers at acquiring firms and are thus most likely to serve similar roles. Over-placed workers are 13% more likely not to be employed at the targeted firms after a merger, and those who remain with the targeted firm see their hours reduced by 11.9%, compared to 3.9% and 2.8% reductions respectively for workers who are not over-placed. For a given worker, being acquired by a firm over two-thirds of whose workforce has a similar skill set leads to 18.9% and 18.0% reductions in retention and hours respectively, compared to 9.4% and 7.6% among workers in firms whose acquiring firm employs workers among whom fewer than a third have similar skills.
In the wake of the growing recognition that antitrust has a role to play in labor markets, our findings suggest that not only anticompetitive conduct but also labor restructuring can have large, long-lasting impacts on workers.
© Sabien Dobbelaere, Grace McCormack, Daniel Prinz, and Sándor Sóvágó
Sabien Dobbelaere is associate professor of economics at the Vrije Universiteit Amsterdam and an IZA Fellow.
Grace McCormack is a postdoctoral student at the University of Southern California Schaeffer Center.
Daniel Prinz is an economist in the World Bank Young Professionals Program.
Sándor Sóvágó a senior data scientist at the AI Team of Emarsys.
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