Buyouts with Payouts: The Impacts of Private Equity on Workers and Owners

Adam Isen, Jordan Richmond, Matthew Smith and Constantine Yannelis

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We link private equity (PE) buyouts to comprehensive U.S. tax data to explore the impacts of PE on employee and firm owner outcomes. We find PE buyouts lead to employment and earnings drops among incumbent employees that reverse within a decade. Substantial and persistent negative effects are only evident for older workers, higher-wage workers, and managers, consistent with some models of how PE generates value for shareholders. A significant portion of the large negative impacts on specific groups of workers are driven by outsized effects on owner-employees, who also realize extremely large capital gains in the year of the buyout. There is little evidence of follow-on entrepreneurship among bought-out owners. Instead, we observe persistent declines in their business income. Finally, while we find that addon acquisitions lead to larger reductions in employment for some employee groups, including managers, we cannot rule out equal effects on earnings. The results highlight that for the vast majority of employees, there are at most small effects of modern PE buyouts.

Date: 2025-09-30
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