NBC examined how workers earning already low wages experienced “reduced circumstances” after their company is taken over by a private-equity firm.
Center for Economic and Policy Research co-director and economist Eileen Appelbaum explained to NBC how the private equity industry’s increasing influence in society is not only a concern for workers, but also has the potential to harm the nation’s broader economy, “You have a lot more ownership of productive resources by investors who don’t know an industry, don’t understand the value of skilled workers and who are just in it to make their profit and get out. That erodes productivity.”
Citing a 2019 study by the National Bureau of Economic Research, NBC reported how employment fell by 13 percent when a private-equity firm took over a public company, and fell by 16 percent when private equity acquired a unit or division of a company in nearly 10,000 debt-fueled buyouts studied between 1980 and 2013.
According to NBC, the “new titans of finance” use large pools of debt to acquire companies they hope to resell in a few years at a profit, causing debt levels at least 30 percent higher than debt levels at companies not backed by private equity. With these heavy debt loads and pressure to flip acquired companies quickly, NBC noted that private-equity firms cut costs in the operations that they buy, often starting with cutting the company’s workforce.
Also noted was how in the past these takeover deals had yielded high returns, but recently the formerly outsized returns in private equity have all but vanished, and are now in line with overall market performance.
Perhaps some of these returns are being reduced by the fortunes amassed by private equity executives, as NBC described how much of their earnings are taxed as capital gains with a top rate of 20 percent, not at the higher 37 percent rate that can apply to income. This allows private equity executives to pay “a lower tax rate on earnings than a secretary or a teacher might.”
While the executives are growing billionaires among their ranks, NBC’s investigation found healthcare workers who had their paid holidays reduced, monthly health insurance costs tripled, employer contribution to their employee pension ended, and their vision insurance and education reimbursement program eliminated after a private equity-owned nursing home operator bought their facilities.
The NBC report also looked at the plight of fast food workers employed by private equity-owned companies. Worker’s pay and conditions were found to be dismal, while their companies actively fought against legislation such as the Raise the Wage Act that would improve the workers’ situation.
About 7 percent of the U.S. labor force — almost 12 million employees — are employed by private-equity-owned companies. These companies generated about 6.5 percent of the nation’s gross domestic product last year, according to NBC.