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Effect of Food Industry Mergers and Acquisitions on Employment
and Wages
Michael Ollinger, Sang V. Nguyen, Donald P. Blayney,
Bill Chambers, and Ken Nelson
Economic Research Report No. (ERR13), December 2005
For many years, mergers and acquisitions in the food industry
have been viewed with skepticism. The primary concern was that
mergers, by reducing the number of firms and increasing industry
concentration, were promoting anticompetitive pricing behavior.
Senate hearings on the effect of mergers and acquisitions in
meatpacking and slaughter are a good example of this concern.
More recent attention by the media and policy officials has
focused on the impact of food industry mergers on changes in
the structure of the economy, particularly on how changes in
employment and wages affect the sustainability of rural communities.
What Is the Issue?
The effect of a merger on local employment and wages is not
readily apparent. Mergers can cause lost jobs and reduced wages
when new ownership attempts to lower production costs by shedding
workers. Mergers and acquisition can, however, preserve and
even increase employment when a firm is saved from bankruptcy
and plant closure or when new ownership expands output and hires
more workers by capturing productivity gains through increased
economies.
During the 1980s and 1990s, 100,000 workers in seven food-related
industries- meatpacking, meat processing, cheese, fluid milk,
flour milling, feed, and oilseed processing (soybean, corn,
and cottonseed processing) lost their jobs. At the same time,
the pace of mergers and acquisitions accelerated in these industries,
leading some observers of the food industry to conclude that
mergers and acquisitions encouraged worker dislocations.
What Did the Project Find?
Empirical analysis of mergers and acquisitions in eight food
industries during two distinct merger waves, 1977-82 and 1982-87,
does not support the commonly held view that mergers and acquisitions
necessarily caused worker dislocations and lost wages. Workers
experienced a modest increase in the number of job opportunities
but little change in wages relative to their peers. Findings
from this report show that mergers and acquisitions led small
plants in the food industries studied to add workers during
the first merger wave of 1977-82 but not during the second merger
wave, 1982-87. Similarly, mergers and acquisitions generally
had a small but positive effect on wages during the period 1977-82
and little discernible effect during the second merger wave,
1982-87. We also found that mergers and acquisitions encouraged
large meat and poultry and oilseed plants to exit their industries
during the 1977-82 period and feed and oilseed plants to close
over 1982-87.
Substantial labor strife marked both merger waves for the meatpacking
and meat processing industries. In some cases, unions acceded
to management demands for wage concessions, but in others, union
workers were either replaced or the plant closed. Employment
gains occurred in the newly acquired plants in the earlier period
because plant buyers shifted production from less efficient,
antiquated facilities producing carcasses to newer, more productive
ones producing boxed meats and poultry parts. With availability
of abundant labor, there was little pressure on the owners of
newly acquired plants to raise wages. In the later period, the
technological change and production shifting in the meat and
poultry sector had pretty much run its course, causing employment
and wage growth in newly acquired plants to be no greater than
that in other plants.
Large cheese, flour, feed, and oilseed processing plants with
high labor costs relative to their total costs were more likely
to exit over 1977-82, and large plants in all industries, except
meat processing and fluid milk, with high wage costs were more
likely to exit over 1982-87. The differences for meatpacking
and poultry slaughter and processing in the earlier period can
be attributed to a major transformation of industry output to
boxed meat products and poultry parts requiring relatively more
labor. Plants that continued to produce carcasses rather than
boxed meat products had lower labor costs but had to accept
a much lower price for their output. Many of the large plants
that produced carcasses were built for an earlier era and either
disappeared or changed their product mix as boxed meat and poultry
production came to dominate the output mix of large plants.
How Was the Project Conducted?
This report examines employment and wage effects and the causes
of plant closures among meat and poultry, dairy, and grain milling/oilseed
processors. Within these three major groupings, eight industries-meatpacking,
meat processing, poultry slaughter and processing, cheese, fluid
milk, flour milling, feed, and oilseed processing (soybean,
corn, and cottonseed processing) are examined. These industries
were selected because they (1) are cost-driven industries in
which production cost economies play a prominent role in a merger
decision, (2) underwent dramatic structural changes, and (3)
are important to farmers who look to them as an outlet for their
products, consumers who view them as providers of final products,
and other manufacturers who regard them as sources of ingredients
for their food or animal products. We use the most recent Census
of Manufacturers data. These data capture all plants producing
food products and include variables for output, employment,
and production costs for individual U.S. manufacturing establishments.
Plants are evaluated over the two most recent merger waves
in the food industry, 1977-82 and 1982-87. The study compares
pre-merger and post-merger wages and employment. For 1977-82,
data from 1977 is used as a gauge of the pre- merger performance
of plants that were acquired over 1977-82 and 1987 as a measure
of post-merger performance. Two periods are used as a check
on the robustness of the results.
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