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American jobs and the impact of private equity transactions21/05/2008. Source: The Private Equity Council. Robert J Shapiro and Nam D Pham
 Strong job creation has been a hallmark of the American economy for a half century. Many factors contribute to America’s strong job-creating performance, most notably robust economic growth. The most important element contributing to that growth is the way America’s markets work, especially the relative ease and speed with which they move labor as well as capital and expertise from enterprises using those resources ineffectively to others that put them to better use. Private equity funds can facilitate those shifts by taking over underperforming firms and reforming their operations, and acquiring healthy businesses and then injecting capital and management expertise to enable them to expand further, write Dr Robert J Shapiro of Sonecon and Dr Nam D Pham of NDP Group in this research paper from the Private Equity Council.
From 1960 to 2006, American businesses expanded the US private-sector workforce from some 46 million positions to more
than 115 million, adding 12.7 million net new jobs in the 1960s, 15.9 million more jobs in the 1970s, another 15 million in 1980s, and an additional 20.6 million in the 1990s. Since 2000, US job creation rates have slowed compared to the 1980s and 1990s, but private companies still created 5.9 million net new jobs from January 2000 to October 2007.Moreover, a study by the International Monetary Fund (IMF) found that from1980 to 1999, US net job gains of more than 1.5 percent a year were at least three times greater than the net gains of 0.5 percent a year or less in the United Kingdom, Germany, France, Austria, Belgium, Denmark, Finland, Italy, and Sweden. Among OECD countries over this period, only Australia outpaced the US in job creation.
Many factors contribute to America’s strong job-creating performance, most notably robust economic growth. The most important element contributing to that growth is the way America’s markets work, especially the relative ease and speed with which they move labor as well as capital and expertise from enterprises using those resources ineffectively to others that put them to better use. Private equity funds can facilitate those shifts by taking over underperforming firms and reforming their operations, and acquiring healthy businesses and then injecting capital and management expertise to enable them to expand further. In theory, therefore, private equity operations should contribute to job creation. To test this proposition, we analyzed the jobs data from 42 large companies acquired by eight large private equity firms in the years 2002 to 2005. We find that this set of companies purchased by private equity funds, after sometimes experiencing initial job losses, generated job gains within two years that exceeded both the initial losses and the rates of job gains by other companies in the same sectors.
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The Private Equity Council, based in Washington, DC, is an advocacy, communications and research organization and resource center established to develop, analyze and distribute information about the private equity industry and its contributions to the national and global economy. PEC members are: Apax Partners; Apollo Global Management LLC; Bain Capital Partners; the Blackstone Group; the Carlyle Group; Hellman and Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners, THL Partners; and TPG Capital (formerly Texas Pacific Group). www.privateequitycouncil.org.
Robert J. Shapiro is the chairman of Sonecon, LLC, a private firm that advises senior officials and executives of U.S. and foreign businesses, governments, and non-profit organizations. Dr. Shapiro has advised, among others, U.S. President Bill Clinton and British Prime Minister Tony Blair; private firms including Amgen, AT&T, Gilead Sciences, Google, MCI, Inc., SLM Corporation, Nordstjernan of Sweden, and Fujitsu of Japan; and non-profit organizations including the American Public Transportation Association, the Education Finance Council, the U.S. Chamber of Commerce, and the American Petroleum Institute. He is also a Senior Fellow of the Progressive Policy Institute (PPI), director of the NDN Center on Globalization, co-chair of Argentina Task Force America, and a director of the Ax:son-Johnson Foundation in Sweden. From 1997 to 2001, he was Under Secretary of Commerce for Economic Affairs. Prior to that, he was co-founder and Vice President of PPI. Dr. Shapiro also served as the principal economic advisor to Bill Clinton in his 1991-1992 presidential campaign, senior economic advisor to Albert Gore, Jr. and John Kerry in their presidential campaigns, Legislative Director for Senator Daniel P. Moynihan, and Associate Editor of U.S. News & World Report. He has been a Fellow of Harvard University, the Brookings Institution, and the National Bureau of Economic Research. He holds a Ph.D. and M.A. from Harvard University, an M.Sc. from the London School of Economics, and an A.B. degree from the University of Chicago.
Nam D. Pham is the founder and president of NDP Group, LLC, an economics consulting firm that specializes in assessing complex issues in finance, international trade, and economic development. Clients of NDP Group include U.S. and foreign corporations, financial institutions, federal and local governments, trade associations,
and multi-national organizations. Prior to founding NDP Group in 2000, Dr. Pham was Vice President at Scudder Kemper Investments in Boston, where he was responsible for research, asset allocations and currency hedges for global and international bond funds. Before that, he was Chief Economist of the Asia Region for Standard & Poor's DRI in Boston. Dr. Pham's also has extensive experience in multinational organizations and government agencies, including service as an economist at the World Bank and consultant to the Department of Commerce and the Federal Trade Commission. Dr. Pham also has been an adjunct professor at the George Washington University, where he has taught monetary economics, international trade and finance, macroeconomics and microeconomics. Dr. Pham earned a Ph.D. in economics from the George Washington University with concentrations in international trade and finance, economic development and applied microeconomics, a M.A. from Georgetown University, and a B.A. from the University of Maryland.
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