Aggregate investment in the private equity industry has grown a hundred fold since 1980. Private equity funds under management now total $2.4 trillion worldwide. However, private equity funds are of special interest not only because of their rapid growth but because of their implications for the quality and stability of American jobs. In 2010 alone, private equity firms invested $148 billion in 1,234 U.S.-based companies, which employ more than eight million people.
Eileen Appelbaum and Rosemary Batt will write a book exploring the impact of private equity on management strategies, employment relations, and the organization of work. The book will offer an overview of the private equity industry, including analysis of how private equity firms use operations management, leverage, and financial engineering to improve companies’ financial performance. The book will also assess the benefits and risks of these strategies for American workers.
Appelbaum and Batt will present case studies from manufacturing, retail, healthcare, and urban infrastructure to illustrate how the private equity model plays out in different industrial sectors. The manufacturing and retail industries were among the earliest targets of private equity funds because of their large real estate assets, which were used as collateral to provide cash flow for private equity firms. Healthcare and urban infrastructure have been more recent targets because their revenues are less dependent on the business cycle. Appelbaum and Batt’s case studies will explore a number of questions about the effects of private equity on labor relations and industrial organization: To what extent do the returns for private equity investors come from workplace innovations and productivity improvement as opposed to financial engineering, extensive use of leverage, or tax arbitrage? How does the structure of financing and ownership affect management decisions regarding business strategies, location of activities, organizational restructuring, and human resource policies? How does this form of ownership affect investment of enterprises in innovation, skill, organizational learning, and customer service? Under what conditions does private equity ownership create sustainable enterprises and stable jobs? Are different groups of workers differentially affected by private equity ownership, possibly leading to increased inequality in wages and working conditions between more versus less-skilled occupational groups?