1. Compensation Policy, Human Resource Management Practices and Takeovers David N. MARGOLIS CNRS, TEAM-Université Paris 1 Panthéon-Sorbonne, INSEE-CREST and IZA Presentation prepared for the DTI/PSI workshop “Making Linked Employer-Employee Data Relevant to Policy Analysts”

2. Takeovers, Firms and Workers Takeovers are not a new phenomenon Source: FactSet Mergerstat LLC, U.S. Bureau of Labor Statistics. Despite importance for economic growth, they get bad press because of perceived implications for workers

3. Policy Issues Involved Which firms are likely to be acquired and by whom? Are there really more layoffs ex-post? If so, who gets laid off? How much extra help might these people need to find new jobs?

4. The Economist’s Perspective Controlling the actions of incumbent management Costly capital and the lack of investment opportunities Attaining a critical mass Increasing market share Enforcement of threats under tacit collusion Insurance against market-specific risks

5. How Do LEED Help? Employer-side data –Sectoral data: Can’t see who does what –Firm account data: Can’t see the people –Specific surveys: Can’t follow the same people, lack of representativity Employee-side data –Basically inexistent –Workers do not know details of employer’s accounts Panel LEED data can solve all of these problems

6. The Data Used Here MDST: Covers all asset transfers over a certain size (8M French Francs), with classification of type of transfer FUTE: Firm financial accounts (balance sheet, income statement, flow of funds and tax records) DADS: Linked employer-employee data covering 1/25 of the French population any time they are employed EDP: Additional individual information drawn from census records, birth and death records, marriage registrations… ALL OF THESE DATA CAN BE MERGED DUE TO COMMON IDENTIFIERS

7. What Do the Different Types of Firms Look Like?

8. What Distinguishes Acquired and Acquiring Firms from Others? Acquired Firms Compensation Policy: Lower starting and seniority pay than acquiring, higher than controls HR Practices: Lower seniority than acquiring, More men, more older, white collar and “expensive” workers than controls Firm Accounts: Fewer employees, higher debt/assets and ROA than acquiring Acquiring Firms Compensation Policy: Higher starting and seniority pay than acquired, higher than controls HR Practices: Higher seniority than acquired, More men, more older, white collar and “expensive” workers than controls Firm Accounts: More employees, lower debt/assets and ROA than acquired

9. Who Stays, Who Goes?

10. Layoffs Not Evenly Distributed Across Workforce: Buyers Exploit New Information Similar patterns in acquired and acquiring firms: –HR Practices: Younger, less senior, male, white collar, “inexpensive” workers leave more –Firm Accounts: Employees of larger firms leave more, no role for productivity or profitability Difference concerning Compensation Policy: Workers at firms with particularly low starting and seniority pay leave more

11. Conclusion LEED Data and Takeovers Allow us to confirm economists’ ideas about takeovers –Managerial control explanation seems valid –So does investment opportunities explanation Allow us to characterize which firms are on each side of the transaction –Depends only characteristics observable without any private information Allow us to see where the layoffs come from –Mostly acquired firms Allow us to see who gets laid off and when –Lots of differences –Large layoffs up-front in acquired firms, more delayed in acquiring firms

12. Conclusion Policy Implications Smaller firms disappear due to inability to access affordable capital –Capital Market Failures? –Role for Public Subsidies of Start-Ups? Acquired firms do lay off more than others –Some planning can be undertaken since similar types of workers are laid off BUT –May not necessitate significant additional resources since laid off workers possess characteristics associated with faster job finding

13. Thank You