M&As, Employee Costs, and Labor Reallocation

ABSTRACT Mergers are associated with large and persistent earnings declines for incumbent employees in target firms. Linking employer‐employee administrative data with information on merger activity in Brazil, I find the negative effects concentrate on employees who exit target firms and reflect displacement in the short run and wage declines in the long run. Low‐skilled, managerial, and older employees fare worse. Overall, I conclude that mergers are followed by substantial reallocation costs reflecting losses of firm‐specific wage premiums, matching inefficiencies, and industry‐specific human capital depreciation, with employees transitioning to lower paying firms considered to be of lower productivity and employment value.