Business Formation: A Tale of Two Recessions
January 29, 2021
Summary
While business applications fell slowly and persistently during the Great Recession, they followed a V-shaped pattern during the COVID-19 recession. Furthermore, the authors of this working paper find that the changing composition of business applications in 2020 suggests a higher surge in new nonemployer businesses relative to new employer businesses.
View PaperWorking Paper 2021-5
Abstract: The trajectory of new business applications and transitions to employer businesses differ markedly during the Great Recession and the COVID-19 recession. Both applications and transitions to employer startups decreased slowly but persistently in the post-Lehman crisis period of the Great Recession. In contrast, during the COVID-19 recession new applications initially declined but have since sharply rebounded, resulting in a surge in applications during 2020. Projected transitions to employer businesses also rise, but this projection is dampened by a change in the composition of applications in 2020 toward applications that are more likely to be nonemployers.
JEL classification: D2, E65, G33
Key words: COVID-19, business failures, liquidity, small business
Digital Object Identifier: https://doi.org/10.29338/wp2021-05
The authors thank Shawn Klimek and Scott Ohlmacher for helpful comments. Any opinions and conclusions expressed herein are those of the authors and do not represent the views of the U.S. Census Bureau, the Federal Reserve System, the Board of Governors, or their staff. The Census Bureau's Disclosure Review Board and disclosure avoidance officers have reviewed this data product for unauthorized disclosure of confidential information and have approved the disclosure avoidance practices applied to this release (approval number CBDRB-FY21-062). Any remaining errors are the authors' responsibility.
Please address questions regarding content to Emin Dinlersoz, U.S. Census Bureau; Timothy Dunne, University of Notre Dame; John Haltiwanger, University of Maryland; or Veronika Penciakova, Federal Reserve Bank of Atlanta.
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