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The impact of COVID‐19 on small enterprise owners: Proof from the first 3 months after widespread social‐distancing constraints

The impact of COVID‐19 on small enterprise owners: Proof from the first 3 months after widespread social‐distancing constraints


  1. 1. Social‐distancing limitations and health‐ and economic‐driven need changes from COVID‐19 are predicted to shutter many small businesses and entrepreneurial ventures, but there is very little early proof on impacts. This paper delivers the first study of impacts of the pandemic on the number of active small businesses in the United States using nationally representative data from the April 2020 Present Population Survey—the first month fully charging early results. The number of active business proprietors in the United States plunged by 3.3 million or 22% over the critical 2‐month window from February to April 2020. The decline in active business owners was the largest on paper, and losses to business activity were felt across nearly all enterprises. African‐American businesses were hit particularly hard experiencing a 41% drop in business activity. Latinx business proprietor activity fell by 32%, and Asian business owner activity declined by 26%. Simulations show that industry designs partly put these groups at a more heightened risk of business activity losses. Immigrant business owners shared substantial losses in business activity of 36%. Female business owners were also disproportionately impacted (25% drop in business activity). Continuing the study in May and June, the number of active business owners stayed low—down by 15% and 8%, respectively. The resumed losses in May and June, and partial rebounds from April were felt across all demographic groups and most enterprises. These results of early‐stage losses to small business activity have important implication for policy, income losses, and future economic imbalance.

2. The overall closing of stores and corporations in the United States and around the world due to the coronavirus is unusual. Stores, factories, and many other corporations have closed by policy mandate, downward demand shifts, health concerns, or other factors. Many of these closures may be permanent because of the incapacity of owners to bear ongoing costs and endure the shutdown. The effect on small businesses around the world is likely to be severe.

3. The early results of COVID‐19 on small business and entrepreneurs are not well known because of the scarcity of timely business‐level data released by the government. This paper manages this restriction by creating estimates of the number of enterprise owners from monthly Present Population Survey (CPS) microdata files. Using these timely data, I read how COVID‐19 affected small business owners in mid‐April 2020—the first month to grab the overall shelter‐in‐place restrictions in the United States. I then extend the analysis to include the next 2 months as many states that had restrictions started to relax those constraints.

4. The CPS data are used by the Bureau of Labor Statistics (BLS) to track unemployment rates, and have been used in prior research to study determinants of enterprise ownership (e.g., recently, Fairlie & Fossen, 2019; Levine & Rubenstein, 2017; Wang, 2019). The CPS captures the recent work activity of the corporation owner, and whether that company owner is presently operating the business. Thus, the digit of active business owners can be captured in the data, but there is no way of narrating whether these are transient or permanent business closures. Many of the dormant business owners, however, are likely to invariably close their businesses especially if the COVID‐19 caused slump is prolonged. Even temporary closures caused by the pandemic are difficult because they reflect income losses to business owners in those inactive months.

5. This analysis provides the first assessments of the early‐stage results of COVID‐19 on small business owners from April 2020 CPS microdata. I find that the digit of working business owners descended from 15.0 million in February 2020 to 11.7 million in April 2020 because of COVID‐19 mandates and health‐ and economic‐driven need shifts. The loss of 3.3 million active business owners (or 22%) was the biggest drop on record. When training on working roughly 2 or 4 days/week, the losses are even bigger (28% and 31%, respectively). Total hours worked by all corporation owners dropped by 29%. Although incorporated businesses are more growth‐oriented and sound, they experienced a decline of 20% from February to April 2020.


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