PRINT THIS PAGE American Jobs and the Impact of Private Equity Transactions
13/02/2008. 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. From 1960 to 2006, American businesses expanded the U.S. 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, U.S. 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 from 1980 to 1999, U.S. 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 United States 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/
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