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Private Equity and Job Quality

Can private equity firms be real champions for frontline workers?

JFF on private equity’s potential to prod companies on job quality for frontline workers, and a look at one firm’s career-pathways project. Also, CHIPS and nondegree workers, and Brookings on realizing the act’s workforce potential.

Investors as Champions for Frontline Workers?

Private equity firms hold a substantial amount of influence over the companies they own, which employ 12M Americans. As a result, private equity could help prod employers to improve job quality for many frontline workers—with potential ripple effects across the economy.

Jobs for the Future makes this case by describing how to create conditions for private equity firms to succeed in promoting quality jobs at the companies they invest in—with good pay, benefits, and a path to promotion.

The reports cite strategies from some of the biggest private equity firms, including a career-pathways project from Blackstone, a job-quality measurement tool from Two Sigma Impact, and advocacy by KKR for employee ownership programs.

Some experts say they welcome efforts by private equity to help lower-income workers, and that the firms have the potential to make a difference. But private equity has a history of chasing short-term returns, they note, including through efficiency-driven restructuring and layoffs. JFF acknowledges this reputation and the damage done to industries such as news, retail, and healthcare.

As a result, some question whether the incentives are there for private equity to drive job quality.  

“There’s a track record of negative effects of private equity,” says Thomas Kochan, a professor at MIT’s Sloan School of Management. “There has to be a massive shift in what private equity firms have traditionally done.”

That change has begun, JFF counters, because the business case for quality jobs is strong.

“The PE industry is facing macroeconomic headwinds, a more complex labor market, and a significant increase in competition for good deals,” says Megha Bansal Rizoli, director of JFF’s employer mobilization practice and author of the two new reports. “As it becomes more competitive, PE firms are looking for different types of strategies to create value and grow their portfolio companies.”

Kochan agrees that a tight labor market and unsustainably high turnover of frontline workers may be encouraging private equity firms to change their expectations.

“There’s a growing segment within the investment community, within business leadership in general, that thinks there has to be a shift,” says Kochan, who is a faculty member in MIT’s Institute for Work and Employment Research.

Blackstone’s Take: Last year, Blackstone became the first private equity manager to top $1T in assets. With its career-pathways project, the firm seeks to broaden talent networks for companies. The program focuses on historically untapped talent pools, including workers without four-year college degrees.

Marcus Felder, a principal with Blackstone, helps lead that effort. Felder, who previously worked on college access at the Posse Foundation and the City University of New York, is based in the firm’s portfolio operations. While some companies relegate programs aimed at job quality to their philanthropic or HR divisions, Blackstone anchors it in core operational functions.

Felder describes the career-pathways work as a strategic talent and workforce program.

“We have the opportunity to strengthen our companies by focusing on talent at all levels,” he says, “from developing a board that brings broad experiences and perspectives specific to that investment to expanding recruiting channels for entry- and mid-level talent from historically untapped communities.”

Blackstone Career Pathways began in 2020 as a pilot across six of the firm’s portfolio companies. For example, Alight Solutions, an IT and consulting company, developed talent-sourcing partnerships with nonprofits and workplace inclusion and diversity initiatives to support those workers.

So far, 47 companies have participated in the program, with 6K+ untapped-talent hires, a more than 2% increase in hires for entry- and mid-level roles at those companies. As part of the project, Blackstone connects businesses with 20+ nonprofit partners, including Year Up, Braven, COOP Careers, and CareerSpring.

“We want to help companies source, retain, and advance top talent, in order to meet their ambitious hiring goals and create inclusive cultures that are essential to creating high-performing organizations,” says Felder, “which in turn creates stronger, more vibrant companies.”

Influencing Smaller Businesses: Private equity firms tend to hold companies for three to seven years, Bansal Rizoli says, which gives them time to exercise influence over core HR functions and to see returns on investing in talent.

“We’re bullish on private equity as a sector that can really do this work at scale,” she says. “We’ve observed a moment where there’s a real interest and urgency to embrace untapped-talent strategies.”

Likewise, more than 85% of the companies that private equity invests in are small or midsize. Firms like Blackstone can help these smaller businesses develop tools, templates, and programs to support more inclusive career paths, Bansal Rizoli says. JFF sees particular opportunity for this work in retail, healthcare, manufacturing, and construction.

Some private equity firms have backed shared ownership to help boost job quality. The report cites KKR, which 12 years ago began working with its manufacturing companies to create ownership programs for all their employees. The firm has expanded this model and helps its companies increase workers’ voice in operations and decision-making while also offering educational opportunities to employees. Returns have been high when KKR has exited investments in companies with shared ownership programs.

JFF also highlights attempts by private equity firms to create frameworks for measuring and promoting job quality in their companies. Two Sigma Impact, for example, recently introduced an open-source good job assessment tool, which is designed to incorporate the voices of workers.

MIT’s Institute for Work and Employment Research recently released a study on the landscape of worker voice research in relation to job quality. The study also sought to develop a reliable measure of worker voice for use in job-quality surveys.

Kochan is skeptical that private equity will take a leadership role in adequately gauging the attitudes of workers, including on what they expect in a job. And he says those metrics need to be used to hold companies accountable.

While he suspects that a small portion of the investment community has bought into the need to pressure companies on job quality, Kochan says a thirst for learning how to do it does seem to be emerging.

The Kicker: “There’s a potential path here,” he says. “It’s an exciting time.”

CHIPS and Workers Without Degrees

The $250B CHIPS and Science Act is a major workforce law. It’s fueling a factory-building boom, which is driving an increase in construction hiring. And the surge in construction eventually will translate into similar gains for advanced manufacturing jobs, Emily Peck reports for Axios.

The federal funding infusion also is underrecognized for being a source of programs and resources for training skilled technical workers without bachelor’s degrees, notes a new brief from the Brookings Institution. The report’s authors, Martha Ross and Mark Muro, say CHIPS and Science is the most important workforce legislation in 15 to 20 years.

Workforce challenges are a core reason that advanced industries such as auto manufacturing, pharmaceuticals, clean energy generation, and digital services have been struggling in the U.S., write Ross and Muro, both senior fellows at Brookings Metro.

The nation faces an economy-wide shortage of skilled workers, they say, including technicians with credentials from community colleges and on-the-job training, as well as engineers and computer scientists with four-year and advanced degrees.

Worsening these dynamics are persistent degree and certification shortfalls as well as stubborn racial and gender inequities,” they write, “many of them exacerbated by the nation’s college for all approach to developing STEM talent and the paucity of paid, work-based pathways into advanced industries.”

Going Deeper: The act authorizes about $2.6B annually in education and workforce funds through the National Science Foundation alone, or about $13B over five years, and potentially far more as part of larger innovation and manufacturing packages overseen by the U.S. Department of Commerce and other agencies.

The Brookings Metro report provides an overview of the many workforce programs included in the act. It will be a significant test of the nation’s commitment to training advanced STEM and critical noncollege technical workers, Ross and Muro say. And substantial work is needed to fully deliver on the act’s potential.

CHIPS is unusual for its integration of economic and workforce development. It seeks to be more sustainable than a onetime federal windfall, in part by seeking private sector support through its focus on employer demand. Matching funds from state and local governments also are part of the strategy, and the new brief shows how lawmakers at these levels can best leverage the federal support.

Click over to Work Shift to read more about the report’s take on CHIPS and the workforce.

Open Tabs

Workforce and Postsecondary
Economic and workforce development policy issues remain the top priority for state higher education leaders, according to an annual survey conducted by the State Higher Education Executive Officers Association. To tackle workforce shortages, governors and legislators are looking to colleges to train and educate workers. ROI also is top of mind, with higher education’s value proposition ranking third on the list of 25 priorities.

Legislation in Georgia
Workforce-related legislation looks to be a focus this year for Georgia’s lawmakers, Jill Jordan Sieder reports in State Affairs. A legislative committee recently recommended increasing tuition reimbursements for college students who pursue high-demand careers and enacting legislation around transfer credits between the University System of George and the state’s Technical College System for programs in high-demand fields.

Black Workers
The unemployment rate for Black workers hit a record low of 5.5% in 2023, according to the December jobs report. However, Black workers are concentrated in industries and job roles that are associated with low wages, often without benefits, writes Michael Collins, a vice president at Jobs for the Future. Collins says news media coverage of low unemployment tends to overlook evidence that Black Americans may have less access to quality jobs.

N.Y. and AI
Kathy Hochul, New York’s Democratic governor, seeks the creation of a $400M public-private AI research consortium. With $275M in state spending, her proposal calls for six public and private universities to chip in funding for the Empire AI computing center, which the universities could use to better compete with Big Tech on R&D related to AI. Private philanthropy also would contribute to the project, which would aim to create jobs and to “unlock AI opportunities focused on the public good.”

AI and Worker Trust
A trust gap on AI has formed across the workplace, with employees being more skeptical than business leaders, Workday found in a global survey. While both leaders and employees hope for a “transformation scenario” with AI, workers are much less confident that their company takes a people-first approach. Small shares of both employees (22%) and leaders (30%) say their company has shared guidelines on responsible AI use.

Wiley’s Restructuring
Inspirit Capital, a U.K.-based investment firm, has acquired Wiley Edge, an early-career talent, training, and placement business. Wiley, a publishing and research company, recently sold its online program management arm to Academic Partnerships. The company last year announced plans to sell its job-training and OPM divisions as part of a restructuring plan where Wiley seeks to lean into research and learning.

Thanks for reading. Let me know what I missed? —PF