Wave of Corporate Mergers Could Put More Americans Out of Work

Last week, we reported on the number of temporary layoffs that are turning into permanent job losses.  Now Goldman Sachs is projecting even more permanent job losses coming down the pike as a wave of mergers, acquisitions and corporate takeovers sweeps through the economy.

Goldman Sachs Group president John Waldron warned that we’re going to see more big businesses doing better, but there will be more job losses along the way as large corporations look to consolidate smaller companies.

You are going to see a fairly sizable amount of large-cap M&A coming with stronger, healthier companies being the acquirer and taking advantage of weaknesses in their industry or elsewhere.”

The Fed’s extraordinarily loose monetary policy coupled with federal government intervention will help facilitate these mergers. Big companies in industries hit hardest by the pandemic can tap financing at obscenely low interest rates.  They can then use that money to gobble up smaller competitors. Waldron said the market “is giving them the license to do M&A, encouraging more consolidation.”

But it isn’t really “the market” greenlighting this consolidation. It’s central bank and government manipulation of the market creating an environment ripe for corporate consolidation and the resulting job losses.

Waldron said we should expect “sticky” unemployment as we move forward.

We’re already seeing significant trouble in the labor market. According to the Bureau of Labor Statistics, the number of job losses categorized as permanent grew by 345,000 to 3.8 million people in September. In other words, nearly 4 million unemployed Americans have no prospects of returning to work.

Mergers and acquisitions won’t be the only drag on the job market.  The looming prospect of more corporate bankruptcies and business closures will put even more downward pressure on employment. Large company bankruptcies have already surged to a level not seen since 2010 and more than 420,000 small businesses have closed their doors permanently since the beginning of the pandemic. That represents a staggering 7.1% of all small businesses. A Brookings report estimates that the US economy has lost some 4 million jobs in the small business sector “that will only return with the creation of new businesses.”

Lockdowns and the government/central bank response to the ensuing economic fallout may have permanently scarred the labor market and there are signs of deep wounds that won’t quickly heal. In a nutshell, a lot of people will likely never return to work.