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In the Wake of the Pandemic, Flexible Work Arrangements Made Workers Less Likely to Start Their Own Businesses‌

For many small business owners, flexibility—the ability to set one’s own schedule and shape one’s work life—has long been a selling point for entrepreneurship. But COVID-19 helped make remote work and other flexible arrangements more of a norm for traditional jobs in many industries. A new study co-authored by Yale SOM’s John Barrios shows how this shift in workplace norms changed who starts businesses, revealing that when traditional employment offers comparable flexibility to self-employment, the pull toward entrepreneurship weakens, especially for women-founded businesses. The findings also offer a clear message for employers: flexibility is now a competitive tool for retaining talent.

A man working at a desk in his attic
Photo: John Conrad Williams, Jr./Newsday RM via Getty Images

In 2019, less than 10% of Americans worked from home. Then the COVID-19 pandemic spurred significant shifts in labor markets, in how companies run, and in life for the workers that keep them afloat. Two years later, more than a third of workers in certain sectors were remotely logging in to work. ‌

Researchers are still working to fully understand the lasting implications of that COVID-driven shift, including on the people interested in starting their own small businesses. ‌

“These new trends coming from the pandemic that are here to stay are, to a certain extent, reshaping areas of our economy that are less visible,” says John Barrios, an associate professor of accounting at Yale SOM. But he, adds, we won’t see all of the consequences of those shifts for a decade or more. ‌

Much of the existing research on pandemic-related work-from-home policies is focused on white-collar office workers, employed in sectors that were more likely to be able to transition to at-home work. Barrios recently co-authored a paper on how flexible work policies influence entrepreneurship, with a focus on blue-collar workers who might establish hair salons, auto body shops, dry cleaners, and other types of businesses. Barrios and his co-authors, Hanyi Yi of Boston College and Yael Hochberg of Rice University, hoped to understand how, as work-from-home policies flourished, entrepreneurial-minded workers changed their assessments of the risks and benefits of starting their own business.‌

To examine these trends, the researchers collected data on new business registrations and assessed the availability of work-from-home positions in different regions of the U.S. They also carried out a survey to assess the attitudes of would-be entrepreneurs among workers who were able to work from home during the pandemic.‌

The team found that overall, new business registrations grew post-pandemic, but flexible work and work-from-home policies, in areas where they were available, appeared to dampen new registrations, particularly among women. ‌

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Specifically, their analysis showed that prior to the pandemic, U.S. zip codes with more jobs for which telework was likely showed overall higher levels of entrepreneurship. But as the pandemic bore down and more people worked from home, the researchers found that high work-from-home regions saw fewer startups than would have been expected. A one-standard-deviation increase in work-from-home employment correlated with a 45% smaller jump in new business registrations. ‌

Their survey results showed that as flexibility in traditional jobs increased, survey respondents were less likely to connect the value they place in a flexible workplace with the desire to start a business. ‌

Traditionally, more flexibility at a traditional job was thought to encourage entrepreneurship, because that workplace flexibility allowed employees the time and space needed to experiment and develop their own ideas and businesses. Barrios and his coauthors show that the pandemic revealed the opposite: when traditional employment offers comparable flexibility, via working from home, the pull to start a business weakens, and areas where working from home is available more saw smaller‑than‑elsewhere increases in new business registrations, particularly for women.‌

“A lot of small-business entrepreneurs are becoming their own bosses because they want to get control over their work schedule and what they're doing,” he says.‌

That could shift the overall hypothesis for why some workers want to leave more traditional employment. ‌

“Our big thought here is trying to rethink this interaction between the labor market and the amenities in the labor market, and how that shapes the people that go into entrepreneurial activity,” explains Barrios. ‌

In the past, entrepreneurs were thought to be risk-takers in search of higher payouts. That’s still the case for many would-be business-owners, but others “want to have control over their work life,” says Barrios.‌

This insight could prove valuable for employers looking to retain workers in a post-pandemic job market. Today, the prevalence of working from home has stabilized for most college-educated workers in North America, Europe, and Africa at about one day per week. But many workers may have emerged from the post-pandemic period with an appetite for more wiggle room in how their jobs function. ‌

Barrios and his team’s results demonstrate the importance of cultivating flexibility in the workplace if you want to keep workers.‌

“This is one of the job attributes that potentially employers are competing on to retain employees,” he says. ‌

Department: Research