Private Equity and Pay Gaps Inside the Firm

Exploiting a 20-year sample of leveraged buyouts matched to French administrative data, the authors document that target firms post-buyout experience reduced within-firm wage inequality together with increased profitability relative to control firms. Pay gaps between men and women, managers and non-managers, and older and younger employees decline by 9%, 4%, and 21%. The p90/p50 and p90/p10 wage ratios also decline. Composition effects drive these results. Post-buyout, target firms separate from expensive employees in the high-pay categories (men, managers, and older employees) and replace them with cheaper and younger ones. Employees staying in the firm experience small relative pay increases. Separated employees in high-pay categories were paid more before the buyout than similar employees at other firms and have worse career outcomes after separation.