2020
Working Paper
HBS Working Paper Series

Flight to Safety: How Economic Downturns Affect Talent Flows to Startups

By: Shai Benjamin Bernstein, Richard Townsend and Ting Xu

Format:Print
| Language:English
| Pages:54

Abstract

This paper investigates how economic downturns affect the flow of human capital to startups. Using proprietary data from AngelList Talent, we study how individuals’ online job searches and applications changed during the emergence of the COVID-19 crisis. We find that job seekers shifted their searches toward larger firms and away from early stage ventures, even within the same individual over time. Simultaneously, job seekers broadened their other search parameters, considering lower salaries and a wider variety of job types, roles, markets, and locations. Relative to larger firms, early stage ventures experienced a decline in the number of applications per job posting, a decline driven by higher quality and more experienced job seekers. This led to a deterioration in the quality of the human capital pool available to early stage ventures during the downturn. These declines hold within a firm as well as within a job posting over time. Our findings uncover a flight to safety channel in the labor market, which may amplify the pro-cyclical nature of entrepreneurial activities.

Keywords

Startup Labor Market; Flight To Safety; Covid-19; Recession; Business Startups; Human Capital; Business Cycles; Health Pandemics

Citation

Bernstein, Shai Benjamin, Richard Townsend, and Ting Xu. "Flight to Safety: How Economic Downturns Affect Talent Flows to Startups." Harvard Business School Working Paper, No. 21-045, September 2020.