The impact of COVID‐19 on small business owners: Evidence from the first three months after widespread social‐distancing restrictions

• Author: Robert Fairlie
• DOI: http://doi.org/10.1111/jems.12400
• Date: 01 October 2020
• Published date: 01 October 2020

J Econ Manage Strat. 2020;29:727–740. wileyonlinelibrary.com/journal/jems © 2020 Wiley Periodicals LLC

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727

Received: 2 June 2020

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Revised: 24 July 2020

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Accepted: 11 August 2020

DOI: 10.1111/jems.12400

ORIGINAL ARTICLE

The impact of COVID‐19 on small business owners:

Evidence from the first three months after widespread

social‐distancing restrictions

Robert Fairlie

Department of Economics, University of

California, Santa Cruz, California

Correspondence

Robert Fairlie, Department of Economics,

University of California, Santa Cruz, CA,

95064; Stanford University (Visiting

Scholar), and NBER.

Email: rfairlie@ucsc.edu

Abstract

Social‐distancing restrictions and health‐and economic‐driven demand shifts

from COVID‐19 are expected to shutter many small businesses and en-

trepreneurial ventures, but there is very little early evidence on impacts. This

paper provides the first analysis of impacts of the pandemic on the number of

active small businesses in the United States using nationally representative

data from the April 2020 Current Population Survey—the first month fully

capturing early effects. The number of active business owners in the United

States plummeted by 3.3 million or 22% over the crucial 2‐month window from

February to April 2020. The drop in active business owners was the largest on

record, and losses to business activity were felt across nearly all industries.

African‐American businesses were hit especially hard experiencing a 41% drop

in business activity. Latinx business owner activity fell by 32%, and Asian

business owner activity dropped by 26%. Simulations indicate that industry

compositions partly placed these groups at a higher risk of business activity

losses. Immigrant business owners experienced substantial losses in business

activity of 36%. Female business owners were also disproportionately affected

(25% drop in business activity). Continuing the analysis in May and June, the

number of active business owners remained low—down by 15% and 8%, re-

spectively. The continued losses in May and June, and partial rebounds from

April were felt across all demographic groups and most industries. These

findings of early‐stage losses to small business activity have important im-

plications for policy, income losses, and future economic inequality.

1|INTRODUCTION

The widespread closing of stores and businesses in the United States and around the world due to the coronavirus is

unprecedented. Stores, factories, and many other businesses have closed by policy mandate, downward demand shifts,

health concerns, or other factors. Many of these closures may be permanent because of the inability of owners to pay

ongoing expenses and survive the shutdown. The impact on small businesses around the world is likely to be severe.

The early effects of COVID‐19 on small business and entrepreneurs are not well known because of the lack of timely

business‐level data released by the government. This paper addresses this limitation by creating estimates of the

number of business owners from monthly Current Population Survey (CPS) microdata files. Using these timely data,