In Focus: Private Equity Drags Wages Down, Drives Unemployment Up
Part 6 of Capitol Dispatch's ongoing 'In Focus' series on Private Equity
For all we know about the bankruptcies and profit-over-people business models tied to private equity firms, the practice’s effect on hardworking people in our communities is understated in modern media. The impact is nothing good.
The European Center for Economic Policy and Research, in mid-2025, published a study that dove into the ground-level impacts of private equity, and the results weren’t pretty. In a comparison of 2.5 million workers at employers who were purchased by private equity firms, with workers at firms not acquired, the results were stark: unemployment for workers rose and wages fell significantly, with the biggest wage losses coming from workers who leave a firm.
“These dynamics appear to be the result of private equity acting to increase efficiency rather than exploiting labor market power,” the report’s authors said.
Workers at a firm bought out by private equity are 1% less likely to be employed a year after the purchase compared to a regular employee, with those odds rising to 2% less likely after three years. That’s expected to be due to firms cutting jobs post-purchase to cut costs. Wage losses were even more significant, down 10% in one year and 18% in three after a buyout compared to regular workers.
In an interesting quirk, wage losses don’t fall for employees who stay with their employer, meaning most wage losses are tied to either resignations around the time of a purchase or firings after one.
The report then looked into manufacturing plants purchased by private equity with the findings that labor decisions are often made focused on enhancing productivity, which leads to increased downsizing in plants with lower production.
The report’s findings look especially grave when paired with a United For Respect study conducted in 2019. Reviewing the 2010s and private equity’s impact, the study found private-equity owned companies are twice as likely to go bankrupt as public ones and that more than 1.3 million job losses occurred due to private equity-owned businesses in the decade. The study added that private equity has eliminated eight times as many jobs as it has created in the last ten years.
Due to private equity deals, “working people face sudden unemployment and protracted financial hardship,” with some companies using bankruptcy to reduce obligations to boot, United For Respect found. That’s even starker when the top 25 hedge fund managers in the United States make an average of $850 million per year as of 2019, or $34 million each.
Unfortunately, this trend is likely to continue, as more than 50 of 800 billionaires in America largely became rich off private equity, the Private Equity Stakeholder Project found. While workers are more likely to lose their jobs and see lower wages due to private equity, private equity leaders paid on average a tax rate of just 21.6% compared to general public high-earners, who pay 39.6% at the highest rates.
Many utilized several tax loopholes to retain more of their wealth, with a carried interest loophole reducing taxable income – more than 83% of the owners’ income – at just 20%. When layered with low-interest loans as their wealth continues to grow, some can even see wealth gains incorporated in their income taxed at just 11.3% - lower than the average American family.
As private equity continues to sink its teeth into the economy, both here and worldwide, we’re seeing the effects play out. There’s a reason why people don’t hear about private equity killing more than a million jobs in a decade – too many people are making millions, if not billions, in the process.
By Joe O’Leary
Check out our previous entries in Capitol Dispatch’s ongoing ‘In Focus’ series on Private Equity:
-Part 1: Private Equity Increasingly Killing American Business
-Part 2: How Private Equity Leaves Patients In The Cold
-Part 3: How Private Equity Drives Up Housing Costs
-Part 4: How Private Equity May Price Families Out of Youth Sports
-Part 5: The Human Cost of Private EquityProfiteering in Prisons