Working Paper: NBER ID: w28912
Authors: John C. Haltiwanger
Abstract: Applications for new businesses from the U.S. Census Bureau’s monthly and weekly Business Formation Statistics (BFS) fell substantially in the early stages of the pandemic but then surged in the second half of 2020. This surge has continued through May 2021. The pace of applications since mid-2020 is the highest on record (earliest data available is 2004). The large increase in applications is for both likely new employers and nonemployers. These patterns contrast sharply with those in the Great Recession when applications for likely new employer businesses and in turn actual startups of employer businesses declined sharply and persistently. The surge in new business applications has been uneven across sectors. Ten 3-digit NAICS industries account for 75% of the surge. Dominant industries include Nonstore Retail (alone accounting for 33% of the surge), Professional, Scientific and Technical Services, Truck Transportation, and Accommodation and Food Services. Given that existing small businesses in Retail Trade and Accommodation and Food Services have suffered especially large declines in the pandemic, these patterns are consistent with restructuring induced by the pandemic.
Keywords: COVID-19; entrepreneurship; business formation statistics
JEL Codes: E32; L25; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic restructuring induced by the pandemic (L16) | surge in new business applications (M13) |
| existing small business struggles in sectors like accommodation and food services (L84) | surge in new applications for likely employer businesses (J23) |
| initial decline in business applications (J65) | significant surge starting in June 2020 (E32) |
| surge in applications for likely nonemployer businesses (M13) | shift in the entrepreneurial landscape (O35) |
| flow of applications (J68) | actual new employer startups (M13) |
| Paycheck Protection Program (PPP) (H81) | surge in applications (J68) |
| economic conditions (E66) | business formation (L26) |