A Primer on Private Equity

March 6, 2012

RSF grantees Eileen Appelbaum and Rosemary Batt have released a primer on the private equity sector and its impact on the American economy. The report, published by the Center for Economic Policy Research, examines private equity's effects on jobs, management decision-making, and the sustainability of productive enterprises in the U.S. Here is an excerpt from the report's introduction:

Our examination of widely cited studies of private equity helps to illuminate some of the major controversies over private equity. On employment impacts, for example, we examine the most rigorous empirical evidence, the widely cited National Bureau of Economic Research (NBER) study of the effects of private equity on employment. It finds a “clear pattern of slower growth at [private equity] targets post buyout” – a differential that cumulates to 3.2 percent of employment in the first two years post-buyout and 6.4 percent over five years (Davis et al. 2011:17). This slower growth, the researchers note, “reflects a greater pace of job destruction” at firms taken over by private equity post-buyout than at comparable establishments (2011:18). They nevertheless conclude that employment growth at private-equity-owned firms is only slightly slower than at other similar companies. They reach this conclusion by calculating not only the net effect of employees hired and fired by the private equity owned company, but also by adding in any employees in businesses that the company acquired while it was owned by PE. The jobs of these acquired employees, however, are not new jobs in the economy and clearly were not created by private equity.

Read the full report (PDF). For more research on this subject, see our previous post on private equity, as well as Appelbaum and Batt's other CEPR report, "Financial Capitalism, Breach of Trust, and Collateral Damage: Four Cases."

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