Mergers and Acquisitions, Technological Change and Inequality

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 10% is associated with a 24% (27%) reduction in industry (local labor market) routine share intensity and an eight (sixteen) percentage point increase in the share of high skill workers. These results have important implications on wage inequality: An increase in M&A activity by 10% is associated with a 24% (43%) increase in the mean industry (local labor market) hourly wage and an 20% (48%) increase in industry (local labor market) wage polarization. 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.