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

53 Pages Posted: 7 Oct 2020 Last revised: 3 Apr 2021

See all articles by Shai Bernstein

Shai Bernstein

Harvard Business School

Richard Townsend

University of California, San Diego (UCSD) - Rady School of Management

Ting Xu

University of Virginia - Darden School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 2020

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.

Suggested Citation

Bernstein, Shai and Townsend, Richard and Xu, Ting, Flight to Safety: How Economic Downturns Affect Talent Flows to Startups (October 2020). NBER Working Paper No. w27907, Available at SSRN: https://ssrn.com/abstract=3705117

Shai Bernstein (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

Richard Townsend

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Ting Xu

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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