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Report: Post-Pandemic Startup Surge is Ongoing, Reflects Economic Restructuring

  • Surge in startup formations that began in 2020 has continued through the spring of 2021, economist’s report finds
  • Bulk of new business formation has been concentrated in 10 industries
  • Non-store retail sees particularly strong growth as COVID-19 pandemic accelerates shift to e-commerce

Summary by Dirk Langeveld

Following the major economic impact of the COVID-19 pandemic in the spring of 2020, the number of applications to form new businesses picked up considerably later in the year. A new report from the National Bureau of Economic Research shows that this startup activity has continued to boom into 2021, although it is largely concentrated in a handful of sectors.

John C. Haltiwanger, an economist with the University of Maryland, authored the report and used U.S. Census Bureau data to form his conclusions. While new business applications fell during the pandemic, they rebounded strongly enough that 2020 had the highest level of new business formations since the Census began collecting this information in 2004.

About half a million new businesses were formed in May 2021, second only to the tally in July 2020. About 6 million applications to start a business have been filed during the pandemic. Unlike the trend after the 2008 Great Recession, when new applications for likely or actual employers fell sharply, the latest applications reflect both likely employers and non-employer firms. However, the formation of likely non-employer firms was also four times as strong as after the Great Recession.

Three-quarters of the startup surge in the first 40 weeks of 2020 was concentrated in 10 industries. These included:

  1. Non-store retail
  2. Personal and laundry services
  3. Professional, technical, and scientific services
  4. Administrative and support services
  5. Truck transportation
  6. Food service and drinking places
  7. Repair and maintenance
  8. Ambulatory health care services
  9. Social assistance
  10. Wholesale electronic markets, agents, and brokers

Non-store retail saw particularly strong growth, accounting for one-third of new business formation. This reflects the accelerated shift to e-commerce during the pandemic, a trend likely to endure given the advance of digital shopping before the pandemic.

Haltiwanger says the surge of startups may be part of a continuation of certain trends such as the growth of e-commerce. However, it is less clear whether other changes that became commonplace during the pandemic will endure.

“As the economy recovers from the pandemic, an open question is the extent to which the increases in remote/telework activity observed during the pandemic will persist,” Haltiwanger says in his concluding remarks. “The extent to which these changes ‘stick’ is likely to vary across types of businesses and locations.”

Haltiwanger says the pandemic may have proved a galvanizing force for businesses to drop outmoded methods and embrace new opportunities. He also cautioned that the strong business formation might not result in a corresponding surge in job creation, given the high failure rate of new employer businesses and the boost in likely non-employer firms.

“A closely related question is whether the new non-employers business activity will mostly be stopgap or supplemental as in the past,” says Haltiwanger. “Or alternatively are we seeing an increase in the share of individuals where non-employer activity is the primary or only source of work activity?”

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