The relationship of employment and employee wages with mergers is always a matter of curiosity. Stereotypes suggest that when a new boss takes charge of the office after a merger, they are welcomed by intimidated, bitter and mildly resentful employees waiting for the ‘McCarthyism’ to begin. But, recent studies seem to challenge this stereotype with the data that suggests that production workers and their wages are not affected much by mergers or acquisitions.
Impact of Hostile Takeovers on Wages
This may come as a surprise to many that an acquisition is basically ‘a hostile takeover’, yet, research conducted in 2001 suggested that mergers and acquisitions lead to an increase in employment and wages at production level. Interestingly so, this increase happens only at the production level while central office establishments that are run by ‘white collar’ employees undergo a lower increase in wage, and thus, seem to suffer in the process.
These impacts vary with corporate control changes, for example, mergers in UK result in reduced wages and compensation for non-production employees, while the employees involved in mergers usually being downsized much more often. However, uninvolved employees go unscathed.
Related Mergers and Wages
Mergers have a clear relationship with increased wages when it comes to related mergers. A related merger is defined as a merger between businesses in the same industry yielding higher wage increase than non-related mergers. A study in 1990 found that less than ten percent hostile takeovers result in worker layoffs, affecting only six percent of the workforce.
US And European Company Mergers
With all the positive statistics mentioned above, one research suggests that in the mergers between US based companies and European companies; mergers actually lead to a ten percent decline in labor demand, i.e., number of hours for which labor is hired by the industry. Employment reduction for Swedish manufacturing plants is ten percent, with largest reductions occurring for full acquisitions and smallest reduction percentile for related mergers and acquisitions.
Leveraged and Management Buy Outs
Leveraged buyouts occur when a company buys out another company with borrowed money while management buyouts occur when higher management buys the company from previous owners. In such cases, research suggests that wages of non-production employees are reduced, but production workers get the same wages as before. Management buyout evidently results in reduced labor intensity of production.
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