Private Inequity

by James Surowiecki
The New Yorker
January 30, 2012

At this point, the people who run America’s private-equity funds must be ruing the day Mitt Romney decided to run for President. His fellow Republican candidates, of all people, have painted a vivid picture of private-equity firms—including Bain Capital, where he worked for fifteen years—as job-destroying vultures, who scavenge the meat from American companies and leave their carcasses by the side of the road. Not since the days of “Wall Street” and “Barbarians at the Gate” have the masters of leveraged buyouts looked quite so bad.

Given the weak job market, it makes sense that the attacks have focussed on layoffs. But the real problem with leveraged-buyout firms isn’t their impact on jobs, which studies suggest isn’t that substantial one way or the other. A 2008 study of companies bought by private-equity firms found that their job growth was only about one per cent slower than at similar, public companies; there was more job destruction but also more job creation. And, while private-equity firms are not great employers in terms of wage growth, there’s not much evidence that they’re significantly worse than the rest of corporate America, which has been treating workers more stingily for about three decades.

(Read more here.)