Tuesday, March 12, 2024

The Effect of M&A on Workers

New research by Arnold, Milligan, Moon and Tavakoli investigates worker outcomes from mergers in Canada. They identify three possible mechanisms: 1) workers may gain bargaining power if the firm's products have increased market power, 2) workers may lose bargaining power if the reduced number of firms confer onto them monopsony power, 3) workers who are not retained after the merger may face worse job prospects. The first two do not seem to be important.

First, we don’t find that increasing corporate competition driven by M&A is important for workers either through concentrating the market for the products the workers produce, which would in theory increase worker wages, or through concentrating the labor market, which would in theory decrease their wages. 

However, job displacements usually lead to worse worker outcomes. Which begs the question as to why they were displaced. Earnings fall most for workers with more time at the old firm and workers with higher pay. Their firm-specific human capital may not carry over. Or these are entrenched, overpaid workers that represent the inefficiency the merger was meant to eliminate.

But the efficiency impact of these M&A-driven job transitions depends on whether the higher pay at the old firm reflected higher productivity or was itself a source of inefficiency that the M&A was able to eliminate.

Hat tip: Marginal Revolution

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