Short summary
Mergers and acquisitions are often promoted as engines of growth, promising efficiency gains and stronger, more competitive firms. Yet they can also eliminate rivals and reshape markets. This is why antitrust policy has traditionally focused on weighing potential benefits against risks to consumers. Much less attention has been paid to what acquisitions mean for workers.
Using data from Sweden, this study finds that firms that take over others do initially expand as they absorb their targets. Looking at the two firms together, however, a different picture emerges. The combined business ends up employing fewer workers and generating less revenue in the years after the acquisition, compared with similar pairs of firms that were not involved in a takeover. Profits across the combined firms decline as well.
Workers bear much of the cost. Employees at both acquiring and target firms experience large and persistent earnings losses relative to similar workers elsewhere. Many lose their jobs or move to smaller, lower-paying firms.
Even those who remain employed often see slower wage growth. Especially in cases where the acquisition increases profits at the acquiring firm.
Key Findings
- Acquiring firms grow sharply at first, then scale back. Employment and revenue jump after the acquisition, then decline over time. Five years later, employment is 20 percent higher and revenue 5 percent higher than comparable non-acquiring firms.
- The combined firm shrinks. Employment across the acquiring and target firms is about 30 percent lower five years after the acquisition than in similar firm pairs that were not involved in a takeover, and revenue around 40 percent lower.
- Workers experience large and lasting earnings losses. Relative to comparable workers, those employed at acquiring and target firms earn about 9 percent less in the fifth year after an acquisition.
- Most losses come from job displacement. Roughly four-fifths of the average relative earnings decline results from job separations. The remaining losses come from slower wage growth among workers who stay.
- Wage growth slows even when acquisitions are profitable. Workers who remain often see wage growth reduced, especially in cases when profits rise after the deal.
