Characteristics of the Large Early 2020 Decline in New Businesses During COVID-19

Summary of Study

Bottom Line: The economic consequences caused by the Covid-19 pandemic have dramatically reduced American entrepreneurship compared to baseline annual trends. This drop in new business creation, which is more pronounced than the drop during the Great Recession, has consequences for employees and the broader economy. It could either represent a delay in or a disappearance of business creation. 

Business applications with planned wages -- an important indicator for the labor market and entrepreneurship -- fell precipitously during the Great Recession and has flatlined since then. It is one of the few economic indicators to show no recovery since the end of the last recession. Business applications without planned wages -- a.k.a. sole-proprietorships -- have shown an upward trend in recent years. 

Yet with the Covid pandemic and subsequent economic crisis, both of these metrics have plummeted. The decline in recent weeks -- corresponding to the pandemic -- appears unusually large: from 84,730 applications during the week ending February 1 to 53,510 applications during the week ending March 28 (a 37% decline). 

This decline is uncharacteristically large compared to the year over year change in previous years for these same set of weeks. This drop in entrepreneurship is larger than the one that occurred during the Great Recession. 

Although a decline occurring over the course of the year would normally be expected based on previous years, the decline seen in the actual numbers is dramatically larger than would be expected if 2020 had been a “normal” year. It is not clear if and how the rest of the year will look due to the shocks of Covid and economic recovery strategies.

This decline in entrepreneurship could signify a delay in or a disappearance of business creation. A lack of new business creation threatens to significantly prolong the economic recovery. 

Read the full study HERE

Feature Charticle

Business Applications versus Predicted Business Applications, Year 2020

Kauffman Foundation

Findings:

  • The economic consequences of the Covid-19 pandemic have dramatically reduced American entrepreneurship compared to baseline annual trends.
  • The decline in recent weeks -- corresponding to the Covid pandemic -- appears unusually large: from 84,730 applications during the week ending February 1 to 53,510 applications during the week ending March 28 (a 37% decline). 
  • This decline could either represent a delay in or a disappearance of business creation. 

Read the full study HERE