The Bureau of Labor Statistics of the U.S. Department of Labor is the principal Federal agency responsible for measuring labor market activity, working conditions, and price changes in the economy.
An exodus in the labor force—but to where?
Nicholas A. Schaffer
Many economists have long considered recessions a period of economic reorganization in which firms that have
allocated their resources poorly are unseated by new, more productive firms. Does this belief still hold up today? In
their paper “Flight to safety: how economic downturns affect talent flows to startups” (National Bureau of Economic
Research, Working Paper 27907, October 2020), Shai Bernstein, Richard R. Townsend, and Ting Xu suggest that
the tradition of new firms pushing out the old may no longer be true. One may think that during recessions, those
who lose their jobs at established firms may realize a lower opportunity cost in joining a smaller startup.
Alternatively, one might expect to observe a “flight to safety” as workers seek the believed relative security of a
more established firm.
Using data from the recruiting site AngelList, the authors were able to evaluate the size and age of a firm as well
as the experience and quality of a job candidate. To evaluate the talent flow to a startup, Bernstein and colleagues
measured the number of job applications per job posting. They were also able to note how firms responded to job
applications. Job candidate quality was assessed by the researchers on two metrics. The first was a candidate’s
years of experience. The second metric, generated by AngelList, was a quality score that evaluated candidates
based on their education, skills, experience, and actions taken on AngelList.
The authors found that during the economic downturn that resulted from the coronavirus disease 2019
(COVID-19), job seekers turned their attention away from smaller startups and toward larger, more established
firms. This finding was especially true among higher skilled job seekers. After the beginning of the COVID-19
crisis, the quality and quantity of talent available to fledgling startups decreased markedly. But how were startups
affected by this change? After the onset of the pandemic, firms overall