In the initial weeks of the pandemic, it seemed like the world had come to a standstill. However, during this time, a significant trend was unfolding on a popular digital job platform that primarily serves the startup sector.

A comprehensive analysis of data concerning almost 180,000 users on AngelList Talent (now known as Wellfound), the largest online hiring platform for privately owned and entrepreneurial businesses, has been conducted by researchers from Rotman. Their findings reveal that job seekers in the United States started veering away from smaller, emerging companies. Instead, they were showing a preference for positions at larger, more established firms.

Safe haven

Much like how studies have demonstrated that investors tend to seek safer investment options during economic downturns, this research demonstrates a similar pattern in the job market. Notably, this is the first study to shed light on this phenomenon.

“Our results explain why startups struggled in the COVID-19 downturn despite a robust financing market,” the researchers explain.

Their findings indicated that, in comparison to the period before the pandemic, job seekers displayed a 20 percent increase in their inclination to seek employment at companies employing over 500 individuals, following the declaration of a national emergency in the United States on March 13, 2020 due to the pandemic. These companies predominantly operated in sectors like information technology, media, e-commerce, healthcare, and business services.

Additionally, the average size of companies that job seekers were interested in increased by 29 percent post-March 13, persisting until mid-May, which marked the conclusion of the data analysis period. Job seekers also exhibited a heightened preference for companies larger in scale than their current employment situation.

These trends were consistent in the job application phase as well. The average size of companies to which workers submitted their applications increased by eight percent, and the likelihood of these firms being in a later stage of fundraising saw a 16 percent uptick.

Driven from the top

“It’s not only the quantity of talent that matters for firm success, but also its quality,” the researchers explain. “If the shift is concentrated among high-quality candidates, it means that the startups are not just losing access to any talent, but to the best talent that are critical to their success.”

In addition to a 20 percent decrease in applications to smaller, early-stage startups, the researchers noted that these companies exhibited reduced responsiveness to the applications they did receive. Moreover, they were less inclined to make new hires. This suggests a decline in the overall quality of the applications they were receiving.

This research sheds light on the challenges faced by startups, which are often considered well-positioned to drive economic growth during a recovery. Surprisingly, startups tend to encounter difficulties in hiring during economic downturns.

The pandemic provided an ideal window for studying this phenomenon because it was less convoluted by other potential contributing factors that typically muddle economic downturns. Economic expectations of individuals declined more abruptly and swiftly, and startup financing remained relatively stable.