Mergers and Acquisitions, Technological Change and Inequality
Abstract: This paper documents important shifts in the occupational composition of industries following high merger and acquisition (M&A) activity as well as accompanying increases in mean wages and wage inequality. We propose mergers and acquisitions act as a catalyst for skill-biased and routine-biased technological change. We argue that due to an increase in scale, improved efficiency or lower financial constraints, M&As facilitate technology adoption and automation, disproportionately increasing the productivity of high-skill workers and enabling the displacement of occupations involved in routine-tasks, typically mid-income occupations. An increase in M&A intensity of 1% is associated with a 2.8% (2.9%) reduction in industry (industry-local labor market) routine share intensity and an one (six) percentage point increase in the share of high skill workers. These results have important implications on wage inequality: An increase in M&A activity is associated with higher hourly wages and an increase in wage polarization in an industry (industry-local labor market). Our results are robust to several robustness tests which further support the notion that firm reorganizations through M&As are a first-order driving force of job polarization and inequality.