Study finds startup workers fled for bigger, more established companies during pandemic

A recent study conducted by researchers from the University of Toronto’s Rotman School of Management, Harvard Business School, and the University of California San Diego has found that job hunters in the United States turned away from smaller, early-stage companies during the COVID-19 pandemic in favor of positions at larger, more established firms. The study, published in The Review of Financial Studies, is the first to document this “flight to safety” behavior in the labor market.

The researchers analyzed data from nearly 180,000 users of AngelList Talent (now called Wellfound), which is the largest online recruitment platform for private and entrepreneurial companies. They found that after March 13, 2020, when the U.S. declared a state of national emergency over the pandemic, job seekers were 20% more likely to search for work at companies with more than 500 employees compared to the period before. These companies were mainly concentrated in sectors such as IT, media, e-commerce, health care, and business services. The average size of companies that job seekers searched for also increased by 29%, and job seekers were more likely to search for companies that were bigger than their current employment.

This trend continued during the application phase, with the average size of companies where workers applied increasing by 8%, and the firms being 16% more likely to be in a later stage of fundraising. The overall trend was driven by highly-skilled and better-educated job seekers. The researchers found that this shift in job search behavior had significant implications for smaller, early-stage startups. Applications to these companies dropped by 20%, and the companies became less responsive to the applications they did receive and were less likely to hire. This suggests a decline in the quality of applications.

The study’s findings help explain why startups struggled during the COVID-19 downturn, despite a robust financing market. The shift in job seekers towards larger, more established companies means that startups were not only losing access to talent but specifically losing access to high-quality candidates critical to their success. The researchers conclude that startups tend to struggle to hire during economic downturns, contradicting the notion that they are well-positioned to seed new growth during recovery.

The COVID-19 pandemic provided an ideal period to study this behavior as it was not as complicated by other contributing factors as previous economic downturns. People’s economic expectations dropped sharply and quickly, and startup financing remained relatively healthy. The study highlights the importance of understanding talent flows during economic downturns and the challenges startups face in attracting and retaining skilled employees during such periods.