As COVID-19 recedes, a tide of new U.S. businesses rolls in
A record number of new businesses are being created in the U.S. as the COVID-19 pandemic wanes and the economy reopens. The pace of applications for new businesses from the second half of 2020 through May 2021 marks the greatest on record dating back to 2004, according to a recent report from the National Bureau of Economic Research.
Many of the new businesses were concentrated in the non-store retail sector, which includes e-commerce, truck transportation, and accommodation and food services.
New business applications declined early in the pandemic but rebounded by summer of 2020. John Haltiwanger, a professor of economics at the University of Maryland and the author of the report, attributes that surge to Americans having more time on their hands with much of the economy under pandemic-related restrictions and fewer opportunities to socialize.
"I suppose it's not surprising — a lot of people were home. If they ever had an idea for a small business in the back of their head, they had the time and leeway to do research," Haltiwanger told CBSN.
Remote work boom spawns businesses
New business applications spiked again in May of this year, marking what he called a "second wave" of ideas after the pandemic altered how Americans work and companies conduct business. In particular, he suggests that the normalizing of remote work has influenced small business creation.
"I think we've learned in the past year that we can do a remarkable amount remotely," Haltiwanger said. "So I think the existing businesses small and large that have figured out ways to do things remotely — those have been the ones that have been successful."
That shift has also made space for new businesses. "This has opened up new opportunities for new businesses to come in. We see them come in exactly in the kinds of places you'd expect given the kind of restructuring that's going on in the U.S. economy," he added.
The Coronavirus Aid, Relief and Economic Security, or CARES, Act, which provided emergency funds to families during the pandemic, could also have played a part in new business generation.
"Dollars were flowing in," Haltiwanger said. "And other aspects of the CARES Act that supplemented people's income and so on enabled individuals to think about starting up a business."
A drastically different economy
"I think there is increased evidence that the way the U.S. economy is going to work is going to be different," Haltiwanger said.
When and where work gets done will be among the most drastic changes.
"And this offers all kinds of opportunities for new business, innovation, productivity growth and job creation," he said.
Instead of returning to normal, the economic recovery from COVID-19 will be a "restructuring recovery," according to Haltiwanger. "We need to move to this new normal and startups are going to play a critical role in this restructuring."
Although most startups fail, those that survive tend to grow rapidly and create jobs. That raises Haltiwanger's hopes for the recovery.
"The small fraction of very fast-growing businesses, that survive, create lots of jobs and play a critical role in both job creation, innovation and productivity growth," he said.