Pandemic creates surge in creation of startups
New businesses ranged across many industries
>> The COVID-19 pandemic hurt the U.S. economy in a lot of ways. It choked global supply chains, sent consumer prices soaring and briefly knocked millions of people out of work. But it might have also broken America out of a decadeslong entrepreneurial slump.
New research from economists at the University of Maryland and the Federal Reserve presented Friday at the Brookings Institution, a think tank in Washington, documents a potentially durable surge in Americans starting businesses during and after the pandemic. The new companies range from restaurants and dry cleaners to high-tech startups.
That surge appears to be a direct response to how the fallout of the virus quickly but permanently changed how many Americans live and work.
Those changes opened doors for entrepreneurs, who, economists often contend, are best able to respond to sudden business opportunities. The opportunities came when the federal government was showering Americans with trillions of dollars in pandemic assistance, which may have given many people the capital needed to start a company and hire workers.
Federal statistics showed early signs of the businesscreation burst. Some economists dismissed it initially as a fluke of the pandemic — one likely to quickly fade.
That hesitancy was based in part on studies showing that startup activity had been declining for several decades. A paper this month by economists at the University of Chicago and the Fed showed that startup activity and employment, as a share of the economy, had fallen since the 1980s. A handful of large firms increasingly dominate industries.
But the new paper by John Haltiwanger of the University of Maryland and Ryan Decker of the Fed, two of the nation's leading researchers in the study of economic dynamism, suggests that the pandemic may have broken those trends.
“We find early hints of a revival of business dynamism,” Decker and Haltiwanger wrote.
They cautioned that “in many respects it is too early to ascertain whether a durable reversal of pre-pandemic trends is occurring,” in part because the revival is still so young.
Champions of policies to increase dynamism were less restrained. “This is ev
“In the spirit of crisis equals opportunity, we've long believed that measures in the Rescue Plan helped create a supportive backdrop for entrepreneurs, especially small and minority-owned businesses.”
— Jared Bernstein, White House Council of Economic Advisers