Companies with higher levels of remote work during the COVID-19 pandemic saw more of their employees launch startups, economists have found. They argue this entrepreneurial spillover is a factor policymakers and firms should weigh when shaping remote work policies.

In a research paper titled, “Entrepreneurial Spawning From Remote Work,” authors Alan Kwan (Hong Kong University), Ben Matthies (University of Notre Dame), Richard R. Townsend (University of California, San Diego), and Ting Xu (University of Toronto) describe how they analyzed IP address data in conjunction with LinkedIn data to cross-reference those working from home with those who formed new businesses.

The IP address information came from an unidentified “data partner” that uses first- and third-party cookies to create user profiles and ultimately infer their place of employment. The LinkedIn data – user profiles and resumes – came from Revelio Labs, and was supplemented with US census data and corporate data from Aberdeen CiTDB and People Data Labs.

The boffins analyzed the data “to measure spawning from wage employment into entrepreneurship” – that is, a title change and employment change on LinkedIn indicating a shift from being an employee to a founder.

“Based on our firm-level estimate, we calibrate that at least 11.6 percent of the post-pandemic increase in new firm entry can be explained by spawning from remote work,” the authors state in their paper.

They added that their analysis focused on workers at firms that continued to grow employment during the pandemic – suggesting these startups were more likely voluntary than driven by layoffs.

The authors cite various other studies on remote work showing how it frees up time by reducing commuting, increases productivity, offers more flexible hours, and reduces employee monitoring.

Taken together, the authors theorize, these factors make it easier to explore business formation while protected by the financial safety of a regular wage.

[The departing workers] might start a new firm competing with their old employer. So these employers might not want to invest too much in remote work, given this spillover effect

Ting Xu (徐霆), assistant professor of finance at the University of Toronto and one of the paper’s authors, said the findings have different implications for policymakers and firms.

“For policymakers, these spawnings, which essentially represent positive spillovers, are a good thing,” Xu told The Register. “It’s good that we have people creating new firms, new jobs, and new innovation. This is presumably better reallocation, because essentially remote work allows you to better explore outside options in entrepreneurship.”

He continued, “From firms’ perspective, they might be hurt because they have key employees leaving. [The departing workers] might start a new firm competing with their old employer. So these employers might not want to invest too much in remote work, given this spillover effect.”

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A study (Barrios et al., 2024) of remote work and entrepreneurship from last year found seemingly contradictory results: in some cases, working from home reduced entrepreneurship by substituting for the flexibility typically gained through self-employment. However, Xu said the results, based on zip code data and business registrations, are complementary because they focus on different types of startups.

The Barrios paper, Xu said, emphasized how workplace flexibility suppressed the formation of small businesses. Essentially, workers seeking more flexible working conditions didn’t need to start their own side-hustle lifestyle business when they had the freedom afforded by working from home.

But for businesses that are seeking to grow, like biotech startups – which is what the LinkedIn data captures – remote work provides the time and safety to support that sort of entrepreneurship, Xu said.

Many large technology companies have dialed back on remote work policies implemented during the pandemic. Amazon, Dell, Google, and IBM have all curtailed or cut remote working for employees, often citing allegedly improved camaraderie, innovation, and productivity for on-site work.

Critics of “return to office” mandates note that there are other possible motives, including office occupancy requirements as a condition for local tax breaks and layoff cost avoidance by increasing employee obligations to the point that workers leave voluntarily.

According to the US Bureau of Labor Statistics, remote work is positively associated with productivity growth. “We find that TFP [Total Factor Productivity] growth over both the 2019–21 and the 2019–22 periods is positively associated with the rise in the percentage of remote workers across 61 industries in the private business sector, even after accounting for pre-pandemic trends in productivity,” the labor agency said in a report last October.

Whatever the case, working from home remains widespread. According to a recent study by economists from Stanford University and Autonomous Technological Institute of Mexico (ITAM), working from home “accounts for a quarter of paid workdays among Americans aged 20-64” in 2025. ®