Takeovers and endogenous labor reallocation

Existing work studies the effects of corporate events — such as mergers and acquisitions (M&A) — on workers by examining changes in labor activity before and after the event. Using new data on individual job search behavior, we examine the timing of labor market activity around M&A events. We provide evidence for a significant amount of endogenous worker selection: job search activity for employees of M&A targets begins to increase ten months prior to a takeover announcement. In contrast, stock prices of target companies begin to rise only one month before an announcement. M&A announcements, therefore, appear to mark an intermediate point in the labor reallocation process, rather than the beginning. We show that shifting the window of analysis significantly changes estimates of labor supply parameters during takeovers. The findings illustrate that accounting for endogenous worker selection prior to corporate events such as M&A is critical for correctly estimating their effects on labor.