The Impact of COVID-19 on Small Business Dynamics and Employment: Real-time Estimates With Homebase Data

49 Pages Posted: 5 Aug 2021

See all articles by Andre Kurmann

Andre Kurmann

Drexel University

Etienne Lalé

University of Quebec at Montreal (UQAM) - Université du Québec à Montréal; CIRANO; IZA

Lien Ta

Drexel University - Bennett S. LeBow College of Business

Date Written: July 1, 2021

Abstract

The COVID-19 pandemic has led to an explosion of research using real-time establishment-level data. One key challenge when working with this data is how to take into account the effects of business openings and closings. In this paper, we address this challenge by matching small business establishment records from Homebase with information on business activity from Google, Facebook, and Safegraph to distinguish business closings and openings from other sample exits and entry. We show that this distinction is critical to benchmark the data to pre-pandemic administrative records and estimate the effects of the pandemic on small business activity. We find four key results: (1) employment of small businesses in four of the hardest hit service sectors contracted more severely in the beginning of the pandemic than employment of larger businesses, but small businesses also rebounded more strongly and have on average recovered a higher share of job losses than larger businesses; (2) closings account for 70% of the initial decline in small business employment, but two thirds of closed businesses have reopened and the annual rate of closings is just slightly higher than prior to the pandemic; (3) new openings of small businesses constitute an important driver of the recovery but the annual rate of new openings is only about half the rate one year earlier (4) small business employment was affected less negatively in counties with early access to loans from the Paycheck Protection Program (PPP) and in counties where Federal Pandemic Unemployment Compensation (FPUC) was more generous relative to pre-pandemic earnings of likely recipients, with business closings accounting for a large part of these two effects. The results dispel the popular notion that small businesses continue to suffer more from the pandemic than larger businesses. At the same time, our analysis suggests that PPP and FPUC helped to significantly mitigate the negative effects of the pandemic for small businesses by, respectively, alleviating financial constraints and stimulating demand for local services.

Keywords: Small business activity; Sample turnover versus business openings/closings; Matching records; COVID-19; Paycheck Protection Program; Federal Pandemic Unemployment Compensation

JEL Classification: E01, E24, E32, E60

Suggested Citation

Kurmann, Andre and Lalé, Etienne and Ta, Lien, The Impact of COVID-19 on Small Business Dynamics and Employment: Real-time Estimates With Homebase Data (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3896299 or http://dx.doi.org/10.2139/ssrn.3896299

Andre Kurmann

Drexel University ( email )

School of Economics
3141 Chestnut St
Philadelphia, PA 19104
United States

Etienne Lalé (Contact Author)

University of Quebec at Montreal (UQAM) - Université du Québec à Montréal ( email )

CP 8888 Succ Centre Ville
Montréal, Québec H3C3P8
Canada

CIRANO ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Lien Ta

Drexel University - Bennett S. LeBow College of Business ( email )

101 N. 33rd St.
Philadelphia, PA 19104
United States

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