Lazaro Gamio / Axios

Private equity investors are often criticized for destroying jobs, though the most comprehensive research into their impact on employment found that it was "modest." That's about to change.

Why this matters: Harvard Business School's Josh Lerner says the update to a study on private equity and jobs this time around will definitively show private equity to be a net job creator or job destroyer. He would not tip his hand as to which side of the ledger things now fall.

The issue: Private equity's employment record is difficult to discern, since private companies rarely disclose payroll information to anyone other than tax authorities. But a group of business school professors ― including Harvard's Lerner and the University of Chicago's Steve Davis ― secured access to the U.S. Census Bureau's Longitudinal Business Database, which is derived from IRS records, and then matched those employment records with thousands of private equity transactions that occurred between 1985 and 2005.

They were required to only use the data in the aggregate (i.e., not identify specific transactions), and in 2011 released a working paper that used a control sample of companies not owned by private equity. It found:

  • Private equity has just "a modest net impact on employment ... employment shrinks by less than 1% at target firms relative to controls in the first two years after private equity buyouts."
  • Company demographics have a large impact. Net job losses were higher for retail companies and public companies taken private, while job gains were found for independently-owned companies.
  • Despite the "modest" net results, private equity does create quite a bit of labor turmoil ― firing an above-market number of people in the early days after buying a company, but then also hiring more people in the investment's latter years.

What comes next: Both private equity and the broader labor market have changed a lot since 2005, so the researchers last year decided to update their paper with an extra decade worth of data. It's expected to be released within the next few months.

The fallout: Because private equity executives have regularly used the 2011 paper to push back against "job destroyer" claims, they are inextricably linked to the revision. For better or for worse.

  • For better: Buyout executives will have a giant arrow in their quiver when fighting everything from tax increases to SEC registration requirements to media attacks on their alumni who are running for political office (i.e., the next Romneys).
  • For worse: They'll need to do more than stop complaining about bad PR. They'll have to justify their own existence without looking like hypocrites ― something that could be a tougher trick than turning around a troubled company.

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