The Phaserl


The Structural Jobs Fiasco No One Knows How to Deal with

from Wolf Street:

OK, we get it. We saw the havoc that the financial crisis, the bailouts, QE, and ZRIP wreaked on jobs. We saw the destructiveness on jobs and the general economy of the corporate focus on deploying the nearly free capital to buy back shares and engage in financial engineering and enrich the elite of Wall Street and corporate America, rather than investing in labor and training.

We got that the jobs scenario in America will never be the same again. Things have changed. We moved on. Learned to cope with it. We adjusted the statistics, removed people from the official labor force, and thereby brought the unemployment rate in line where we can feel comfortable with it. Life goes on, as they say.

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1 comment to The Structural Jobs Fiasco No One Knows How to Deal with

  • rich

    “Private Equity at Work” Rigorously Debunks Industry Mythology

    In the meantime, the book is getting the attention it deserve via a glowing review by Bob Kuttner in the New York Review of Books, Why Work Is More and More Debased. The review is not yet online, and I will put it in Links when I see it there.

    Kutter does an admirable job of giving an overview. The reason that that is not trivial is that Appelbaum and Batt have done an exhaustive amount of research, not only reading what appears to be every academic study done in the last two decades on private equity, but also compiling a large number of case studies on widespread practices in the industry.

    For instance, one way that private equity overlord enrich themselves at the expense of the businesses they acquire is by taking real estate owned by the company, spinning it out into another entity (owned by the PE fund and to be monetized subsequently) and having the former owner make lease payments to its new landlord.

    The problem with this approach is usually twofold. First the businesses that chose to own their own real estate did so for good reason. They were typically seasonal businesses, like retailers, or low margin businesses particularly vulnerable to the business cycle, like low-end restaurants. Owning their own property reduced their fixed costs, making them better able to ride out bad times.

    To make this picture worse, the PE firms typically “sell” the real estate at an inflated price, which justifies saddling the operating business with high lease payments, making the financial risk to the company even higher. Of course, those potentially unsustainable rents make the real estate company look more valuable to prospective investors than it probably is.

    Kuttner’s review focuses on the labor market impact of private equity, showing how, as he put it, “…the latest round of work degradation was set off by financial deregulation. The extreme case is the private equity industry.” I wish space had permitted him to highlight one study that Appelbaum and Batt discussed at length, which illustrates a issue they encountered a troublingly significant proportion of the time in the academic work they reviewed: that studies too often state high-level conclusions that do not accurately represent the underlying findings, and thus shade them in favor of the private equity industry.

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