Summary Teaser: In a new working paper, Jakob Beuschlein, Jósef Sigurdsson, and Horng Chern Wong find that workers at acquired firms in Sweden experience wage cuts. Rather than from the increased monopsony power of employers, these wage cuts are due to rent redistribution toward higher CEO pay.
When one company acquires another, the headlines often focus on stock and consumer prices. Will the deal create a market giant that can raise prices for business partners and consumers? Will shareholders see a return? Rarely does the public debate ask what will happen to the workers.
That question matters. Across advanced economies, mergers and acquisitions (M&A) have surged over the past two decades, reshaping industries from tech to retail to manufacturing. Traditional antitrust policy has focused on protecting consumers, guarding against the risk that M&As engender higher prices or less innovation. But the effects on workers are much less understood—and they’re often assumed to be either neutral or even positive if savings from economies of scale are passed along in the form of higher wages.
Our new research suggests otherwise. Using detailed data on every worker and firm in Sweden from 1997 to 2018, we find that acquisitions—all of which in our setting are complete takeovers where the acquiring firm fully absorbs the target—lead to sizable and persistent losses in workers’ earnings. These wage cuts occur primarily in takeovers where the acquiring firm’s CEO sits on the board of the target company. Such insider-driven acquisitions boost profits, but not through expansion or productivity gains. Instead, they do so by cutting wages.
Our findings cast doubt on the notion that acquisitions are engines of efficiency that benefit everyone. Instead, they reveal a darker side of corporate consolidation. In many cases, acquisitions appear to merely shift rents—the profits made from market power and the ability to set prices above competitive levels—away from workers and toward shareholders and executives.
The aftermath of acquisitions: wage cuts and layoffs
To study how acquisitions affect workers, we compare wage changes of workers around the time they experience an acquisition to those of a control group who will go through an acquisition seven years later. These future-acquisition workers look similar in characteristics such as education and productivity, giving us a good sense of how wages would have evolved absent the acquisition.
The results are striking. On average, workers’ pay falls by about five percentin the five years following an acquisition, driven by both wage cuts and layoffs. Wage cuts are mostly concentrated among the workers initially employed at the target firm, whose incomes decline by three percent. For those who lose their jobs, the losses are much larger—roughly 15 percent lower earnings in their subsequent jobs, similar to what workers experience after mass layoffs. Employment at the combined firm declines by roughly 30 percent, and revenue drops by around 40 percent. Profits, on average, do not increase.
Decomposing the sources of worker losses shows that about 80 percent of the total impact comes from job displacement—workers who end up unemployed or move to smaller, lower-paying firms. The remaining one-fifth reflects direct wage cuts among those who stay. These findings are remarkably consistent across firms that were growing or shrinking before being acquired, indicating that the losses are not simply a result of weak firms being taken over.
Labor market power or rent shifting?
One popular explanation for why M&As might hurt workers is that they reduce competition in the labor market. When two major employers in a region merge, workers lose outside options, giving the combined firm more monopsony power: the ability to hold down wages below workers’ marginal productivity. Recent research in the United States has found some support for this idea, especially in industries like hospitals and retail.
But in our Swedish data, the evidence doesn’t fit that story. We find no sign that acquisitions increase firms’ market power over labor. Wage cuts are concentrated among workers from the target firm, not those from the acquiring firm—even when both groups operate in the same local labor market. Moreover, acquirers rarely buy their direct labor-market competitors. Even when they do, the post-takeover wage effects are similar to those where there was no overlap. In other words, the decline in wages isn’t about reduced competition for workers.
Instead, the evidence points to a different mechanism: rent reallocation. When firms possess some market power—either in product markets or in wage setting—they generate economic rents that can be shared between workers, managers, and shareholders. An acquisition can change how those rents are divided, especially if the new management sees an opportunity to cut pay without losing key staff.
Insider acquisitions
When do acquisitions lead to rent reallocation and wage cuts? To find out, we look closely at cases where the acquiring firm’s CEO—or another top executive—already sat on the target’s board before the deal. With access to detailed knowledge of the target’s finances and wage structure, these executives are in a unique position to identify cases where there is room to reduce labor costs—and to act on that information once the acquisition goes through. We find that these insider-driven acquisitions account for the entire decline in wages among target-firm workers. When there’s no prior board connection, wages of workers who remain at the firm don’t fall at all. Moreover, CEOs are especially likely to acquire firms where employees earn high wage premiums relative to similar workers at other firms—suggesting that they deliberately target firms where there’s room to cut pay.
After an insider acquisition, the combined firm’s total employment and revenue tend to remain stable, but acquirer profits and CEO pay rise. Lower wages among target-firm workers explain roughly one-third of the profit gains. This strongly suggests that insider acquisitions are motivated less by productivity improvements than by opportunities to reallocate rents from workers to owners and managers.
Efficiency myths and policy lessons
These findings echo earlier work showing that many M&As fail to deliver the efficiency gains they promise. Studies in corporate finance have long noted that M&As often reduce overall profitability, sometimes driven by managerial overconfidence or empire building. In other cases—so-called “killer acquisitions”—firms buy competitors mainly to shut them down and preserve long-run market power.
Our results add a new dimension to the picture: workers often pay the price.If M&As do not generate productivity gains, there is little justification for the associated wage cuts and layoffs. The traditional “consumer welfare” standard that guides antitrust enforcement overlooks these effects. Even when prices for consumers do not rise, an acquisition can still harm workers through lost jobs, lower pay, and reduced bargaining power.
In Sweden—a country with strong labor protections and collective bargaining—the losses we document are substantial. In more flexible labor markets, such as the U.S., the effects could be even larger. Indeed, recent U.S. studies have found similar wage declines following M&As in sectors with weak unions or few alternative employers. Yet those studies tend to emphasize the increased labor market power of employers as the driver, while our findings highlight another channel: rent shifting through insider control.
This raises important questions for policymakers. Should competition authorities take labor market effects into account when evaluating M&As? Should they scrutinize deals that appear to transfer rents from workers to executives, particularly when executives also sit on the target’s board? The U.S. Department of Justice and the Federal Trade Commission have recently begun to consider these issues more explicitly in their 2023 Draft Merger Guidelines, which emphasizes the potential for labor market harm. Our findings suggest that doing so is well justified, particularly given the role of insider acquisitions in driving wage cuts.
Recognizing this doesn’t mean blocking all M&As. Some truly do increase efficiency and create value. But at least on average, workers rarely share in those gains—and often lose. As competition authorities revisit their tools and objectives, they should adopt a broader view: one that considers not only the price of goods and services, but also the price of labor.
Key takeaway
M&As are often sold as efficiency-enhancing win–win deals for firms and the economy, and competition authorities are rightfully skeptical of such claims. But they often overlook another stakeholder: workers. For them, M&As can mean smaller paychecks, lost jobs, and a quiet shift in who captures the value firms create. In the tug-of-war over corporate rents, evidence from Sweden shows that sometimes, when the CEO wins, the workers lose.
Author Disclosure: The authors report no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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