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    Flight to Safety: How Economic Downturns Affect Talent Flows to Startups
    20 Oct 2020Working Paper Summaries

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

    by Shai Benjamin Bernstein, Richard Townsend, and Ting Xu
    The COVID-19 crisis makes it more difficult for small, young firms to attract talent as higher-quality candidates turn to more mature firms. Such “flight to safety” leads to a deterioration in the quality of human capital available for startups.
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    Author 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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: September 2020
    • HBS Working Paper Number: HBS Working Paper 21-045
    • Faculty Unit(s): Entrepreneurial Management
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    Shai Benjamin Bernstein
    Shai Benjamin Bernstein
    Marvin Bower Associate Professor
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