Merger and acquisition (M&A) activity represents an increasingly important phenomenon in many countries. In 2017, the combined value of worldwide deals exceeded $3 trillion (Financial Times 2017). At the same time, antitrust enforcement in M&A cases has become more lenient over time (Wollman 2019). 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 (Berry et al. 2019, Stiebale and Szücs 2023).
Recently, concerns about the lack of competition in labour markets and the impact for M&A enforcement have also been raised in both policy debates and economic research (Council of Economic Advisers 2016a, 2016b, Naidu et al. 2018, Marinescu and Hovenkamp 2019, Azar et al. 2022, OECD 2022). Consistent with a story of M&A activity reducing wages through increased monopsony power in the labour market, Prager and Schmitt (2021) and Arnold (2021) find negative wage impacts of employer consolidation using micro-data from respectively the hospital industry and across industries in the US. Such effects are driven by employer consolidation that induces large increases in labour market concentration.
In a recent paper (Dobbelaere et al. 2022), we show that even firm consolidations that are unlikely to increase product market or labour market concentration can still have large, long-term welfare impacts for workers of firms targeted by takeovers (target firms) through labour restructuring. In the wake of the growing recognition that antitrust has a role to play in labour markets, our findings suggest that not only anticompetitive conduct but also labour restructuring warrant antitrust scrutiny.
Post-takeover job and income loss for workers of target firms
We use administrative data on firm takeovers, where one firm absorbs another firm, and leverage rich individual-level information on workers and firms in the Netherlands to study short- and long-term impacts of takeovers on incumbent workers at target firms. Our analysis matches target firms to control firms that have not participated in any consolidation activity during our study period and then characterises differential worker outcomes (worker retention, earnings and income measures, and benefit uptake) using an event study framework.
We start by documenting that workers of target firms experience reductions in the quantity of work, both on the extensive margin (i.e. retention) as well as on the intensive margin (i.e. hours worked), at the consolidated firm compared to workers at control firms (Figure 1). We find that in the four years following the takeover, workers are 6 percentage points (8.5%) less likely to be retained and work 77.61 (7.3%) fewer hours at the consolidated firm compared to control firm workers.
Figure 1 Post-takeover job loss for workers of target firms
These employment reductions translate into income loss: workers at target firms have €1,069.51 (2.6%) lower labour income (Figure 2, left panel) and €789.37 (1.9%) lower total income (Figure 2, right panel), which includes earnings at any firm and income from various government benefits (e.g. unemployment insurance benefits and social safety net payments). Thus, the comparatively generous social insurance and safety net programs of the Netherlands only partially compensate for the large decrease in labour market income. These effects are not only large in magnitude, they are also persistent: even four years after the event, target workers on average have 2.8% lower labour market income (from any firm) and 2.3% lower total income. These negative effects are pervasive across many types of takeovers: horizontal (between firms in the same 3-digit industry), vertical (between a service-industry firm and a manufacturing firm), between tradeable firms, or between non-tradeable firms.
Figure 2 Post-takeover income loss for workers of target firms
We further show that the takeover-induced reductions in income are not driven by changes in returns to employment: target workers who remain employed neither experience a drop in labour income nor shift to higher- or lower-paying firms post-takeover, where the latter is measured by firm fixed effects or firm-specific wage premia representing rent sharing (Card et al. 2013). These findings are in contrast to Todd and Heining (2020), who exploit horizontal acquisitions in West Germany and find that firm consolidations reduce employment in the aggregate but increase wages of workers at the consolidated firm consistent with increasing rents per worker post-consolidation.
Post-takeover job loss driven by labour restructuring
We find that a dominant mechanism driving takeover-induced job loss is labour restructuring, which is in line with the efficiency-seeking motive of takeovers (Gort 1969, Jensen 1993, Mitchell and Mulherin 1996, Andrade et al. 2001). We characterise two types of workers that are likely affected by restructuring activities and are harmed the most: over-placed workers and duplicative workers.
Leveraging estimates of firm and worker fixed effects using a similar method to Lagaras (2020) and Schmieder et al. (2022), we identify over-placed workers as workers at a target firm with a higher employer wage premium (or firm-specific rents) than is expected for workers' skills that are valued equally across employers. Thus, for a consolidated firm, these workers are likely more expensive than the human capital that they provide to the firm. We show that disrupting implicit contractual relationships with over-placed workers is a channel through which labour restructuring materialises: over-placed workers experience 13.05% and 11.9% reductions in retention and hours, respectively, at the consolidated firm compared to statistically insignificant 3.9% and 2.8% reductions for not over-placed workers (workers at lower-paying firms than would be expected based on the workers' human capital) (Figure 3). We also see that these workers experience much larger overall reductions in work at any firm (including both the extensive margin of employment and the intensive margin of hours worked) as well as larger reductions in labour income and total income.
Figure 3 Starkly larger post-takeover job loss for over-placed workers
Another channel through which consolidating firms restructure their labour force is through eliminating duplicative workers, workers who have similar skills to the workers at acquirers and thus are most likely to serve similar roles and to be made redundant by the consolidation. We show that for a given worker, being acquired by a firm where over two-thirds of the workforce has a similar skill set leads to a 18.9% and 18.0% reduction in retention and hours, respectively, compared to 9.4% and 7.6% for workers being acquired by firms where fewer than a third of workers have similar skills (Figure 4).
Figure 4 Starkly larger post-takeover job loss for duplicative workers
Finally, we rule out alternative mechanisms explored in previous work that may lead to takeover-induced job loss, such as increased product or labour market concentration (e.g. Geurts and Van Biesebroek 2019, Arnold 2021). Horizontal and non-tradeable takeovers that potentially generate larger changes in product market power and therefore reductions in production and employment are not associated with larger job loss. Virtually none of the takeovers in our sample have a meaningful impact on labour market power. Thus, increased labour market concentration cannot be driving our findings either.
Overall, we conclude that firm takeovers substantially increase the probability of job loss and job loss has long-lasting negative consequences for workers at firms targeted by takeovers. We show evidence that labour restructuring, where consolidating firms restructure their workforce in order to increase efficiency post-takeover, is an important determinant of job loss: workers who are over-placed or workers in acquisitions where the acquirer is more likely to have workers already serving a given role experience higher rates of separation. These findings suggest that even consolidations that are typically viewed favourably from a consumer welfare perspective, those that increase efficiency without likely increasing product market concentration, or that do not impact labour market concentration can still have large, long-term welfare impacts for target workers through labour restructuring. To address concerns raised by these effects, regulatory guidelines could take broader labour force considerations into account in addition to considerations about anti-competitive conduct in product and labour markets and considerations about lobbying power (Prat et al. 2022).
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