Research paper: Small businesses lose big in COVID-19 closures
Thursday, September 24, 2020
Social-distancing restrictions have been nothing nice for mom-and-pop shops during the pandemic. In the Journal of Economic Management and Strategy, professor Robert Fairlie takes a deep dive into the harm that COVID-19 unleashed on U.S. small-business owners.
“These findings of early-stage losses to small businesses have important policy implications and may portend longer-term ramifications for job losses and economic inequality,” he wrote.
The initial closing of enterprises, goods producing and services to slow the pandemic’s spread was severe. According to Fairlie: “This study provides the first estimates of the early‐stage effects of COVID‐19 on small business owners from April 2020 Current Population Survey microdata.
“I find that the number of working business owners plummeted from 15.0 million in February 2020 to 11.7 million in April 2020 because of COVID‐19 mandates and health‐ and economic‐driven demand shifts. The loss of 3.3 million active business owners (or 22%) was the largest drop on record.”
By contrast, business activity fell 5% during the Great Recession, according to Fairlie. It is worth noting that small businesses paved the path in terms of hiring to end the Great Recession in mid-2009.
The microdata Fairlie marshals on 2020 coronavirus-related business closures suggests that many may be permanent. Loss of cash flow is a big reason why those enterprises that closed temporarily might not reopen. Fairlie, a professor of economics at the University of California, Santa Cruz, has testified to Congress on minority businesses’ struggles during the pandemic.
In his paper, he found a small business bounce-back from April numbers in May and June of 7%. However, the fate of small businesses temporarily closed remains unclear.
What is clear is that federal policy is underserving small businesses and their employees. For instance, the GOP-controlled Senate has not approved a new COVID-19 aid package to help constituents including small business owners. The CARES Act, Uncle Sam’s initial economic relief bill, lasted through the summer.
Renee Johnson is a senior advisor with Small Business for America’s Future, an advocacy group based in Washington, D.C. “It’s been five months since the Senate passed any relief programs for small business owners,” she told MultiBriefs in an email. “Many of them are now feeling the impact of trying to figure out how to apply for forgiveness for their Paycheck Protection Program loans and make ends meet without further aid and dwindling consumer demand since enhanced unemployment benefits have expired.”
The $600 per week pandemic unemployment aid ended nine weeks ago. The politics for more federal aid to small businesses, such as 80% of independent restaurants that face closing without additional help from Washington, are dicey.
Why? The focus on a replacement for late Supreme Court Justice Ruth Bader Ginsburg is front and center in the nation’s capital now. Meanwhile, Paycheck Protection Program loans to small businesses through the CARES Act are just about depleted.
In the meantime, Small Business for America’s Future is calling on Congress to craft a COVID-19 recovery plan for mom-and-pop shops across the country. To this end, the group is holding a tele-town hall at 7:15 p.m. EST on September 24. For more information, visit https://www.smallbusinessforamericasfuture.org/.
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