Guest Contribution: “How Has COVID-19 Already Impacted Small Businesses”

Today, we’re pleased to present a guest contribution by Rob Fairlie (UC Santa Cruz).

The widespread closing of stores and businesses in the United States and around the world due to the coronovirus is unprecedented. Stores, factories and many other businesses have closed by policy mandate or downward demand shifts. Many of these closures may be permanent because of the inability to pay ongoing expenses and survive the shutdown. The impact on small businesses around the world is likely to be severe.

Although the effects of COVID-19 on the economy showed up quickly in the stock market, the real estate market and unemployment claims, the effects on small business are not well known because of the lack of timely business-level data released by the government. This paper (ungated version) addresses this limitation by creating estimates of the number of business owners from monthly Current Population Survey (CPS) microdata files. Using these timely data, I examine how COVID-19 impacted small business owners in mid-April 2020 – the first month to capture the wide-spread shelter-in-place restrictions in the United States. This study provides the first estimates of the early-stage effects of COVID-19 on small business owners from April 2020 CPS 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 demand shifts. The loss of 3.3 million business owners (or 22 percent) was the largest drop on record. When conditioning on working roughly two days per week or four days a week, the losses are even larger (28 percent and 31 percent, respectively). Although incorporated businesses are more growth-oriented and stable, they experienced a drop of 20 percent from February to April 2020.

Patterns across gender, race and immigrant status reveal interesting findings (see Figure 5 from the paper, below). African-Americans experienced the largest losses, eliminating 41 percent of business owners. Latinx also experienced major losses with 32 percent of business owners disappearing between February and April 2020. Immigrant business owners suffered a large drop of 36 percent, and female business owners suffered a disproportionate drop of 25 percent. Overall, these first estimates of impacts of COVID-19 on small businesses from the April 2020 CPS indicate that losses were spread across demographic groups and types of business – no group was immune to negative impacts of social distancing policy mandates and demand shifts.

Source: Fairlie (2020).

The next important question is whether the shutdowns of small businesses are temporary or longer term. More permanent mass closures of small businesses in the United States are likely to have a dramatic effect on employee job losses, further income inequality, and contributing to a prolonged recession.


This post written by Robert Fairlie.

10 thoughts on “Guest Contribution: “How Has COVID-19 Already Impacted Small Businesses”

  1. pgl

    Lawrence Kudlow alert!

    President Donald Trump’s top economic adviser, Larry Kudlow, said Wednesday that he doesn’t regard “systemic racism” as a problem in the U.S. I don’t believe nowadays we have systemic racism,” Kudlow told reporters at the White House.

    This is from the fool that told us that they had COVID-19 contained. And of course tax cuts for the rich lead to higher tax revenues. Can we stop calling this court jester an economic adviser?

    1. Barkley Rosser


      Well, this is not even economic adviee, where at least Kudlow could play a pretend game because he used to have a TV show.

  2. Bruce Hall

    I find this interesting that the concern about Covid-19 impact on minority businesses does not extend to Michigan’s governor who has crushed small businesses with her “just two more weeks” refrain of keeping the state’s economy shut down. However, she did express philosophical solidarity by marching in close quarters with the protesters.

    Just as an aside, the BLS reported that Michigan’s unemployment rate was NOT the highest in April… it was only the SECOND highest (big victory there), so we are anxious to see if her repetitive extensions of the shutdown has propelled us into FIRST place (woo-woo). On the plus side, I’m sure those minority business owners and their employees will be forever grateful for her concerns about public safety (which she expressed from the patio restaurant in Traverse City during the Memorial Day weekend).

    But remember all you minority business owners and employees, in November when elections roll around, “It’s all Trump’s fault.”

    1. 2slugbaits

      Bruce Hall What would Michigan’s death rate have been if Whitmer had not instituted a shelter order? In March positive cases were doubling every two weeks in Michigan. A week after issuing her order the number of positive cases started to drop dramatically. Exactly one month after issuing her order Michigan’s Ro had fallen to 0.80 with a 7-day average daily infection rate cut in half and down to 761. And five weeks later when she lifted the order that 7-day daily average had fallen to 454 cases. Today it’s down to 293. I’d call that a success story. Michigan’s case fatality rate is 9.6%. Do you think the sudden spike in cases leading to hospitals being overwhelmed might have something to do with the high fatality rate?

      You keep making the same economic mistake over and over and over again. You never seem to learn. Michigan was going to take an economic hit with or without Whitmer putting the economy into a temporary coma. You keep thinking in terms of a false choice.

      BTW, why didn’t you apply for a job at a meat packing plant? You keep telling us what a brave and fearless fellow you are. In your heart of hearts I’ll bet that you were glad Whitmer issued a shelter order because it gave you the excuse you needed to pretend that you’re brave while simultaneously hiding out in your bunker, just like President Thumper.

      1. macroduck

        Tsk, tsk… Comparing this to that is not how comparisons are made. You pick some state of affairs which can be made to sound worrying and compare it to some other imagined state of affairs which can be implied to be just wonderfully better. Job done.

        I wonder if the fixation on Whitmer will continue if Biden picks someone else. Whitmer is a popular female politician in a swing state who is reportedly on Biden’s short list. Could anyone be more evil?

        1. Moses Herzog

          I really think Susan Rice checks ALL the boxes. Minority (a political tip of the hat to blacks who helped get Biden his nomination), female (hopefully motivating at the very least urban and educated women out to vote, and brings back the black Obama voters who knew Hillary didn’t in fact care for them in the least), and…. thirdly/lastly A woman/black who is not a “token” choice. Rice has the actual intelligence, capability, pedigree, education, background, empathy required for the job. If we could magically make her a white male, with the same background—it STILLmakes perfect sense. We’re not saying “Oh yeah, she’s the best IF we’re picking out of that container of rocks”. She’s great at interpersonal communication (A great feature for a VP who needs to build consensus). Susan Rice also would make a great “war time” President~~~ which is a very common complaint or deficiency that is mentioned in relation to female candidates (often a deficiency women voters, yes, usually older women voters mention themselves, to run any nation. She is particularly suited for being s stellar manager of foreign affairs with her experience in military decisions, working high in the State Department and in weighty national security decisions. She was very close to President Obama—Biden was very close to President Obama.

          The thing that makes me wholly convinced Biden won’t do it, and Biden’s advisers will be against it is~~~the idea is so nearly perfect there’s no way it will ever come to fruition. i.e. It will never happen.

    2. 2slugbaits

      Bruce Hall Here are some facts that might interest you. Three counties (Wayne, Oakland and Macomb) account for 60.9% of all COVID positive cases and 76.8% of all COVID deaths in Michigan. So it’s pretty clear that those counties were hotspots and had to be shut down in order to contain the virus. But those counties also account for 47.9% of Michigan’s state GDP, so there was simply no way that Michigan could avoid a big economic hit. Of course, there were a few counties in the UP that had little to no COVID cases. For example, Ontonagon county had zero cases. But keeping the doors open in that county would not have done anything to help Michigan’s economy. Ontonagon county only contributes 0.03% of Michigan’s state GDP. In other words, the counties with the worst COVID cases were also the counties that contribute the most to state GDP. That’s hardly a surprise since it’s well known that population density is highly correlated with GDP and it appears that virus spread is also correlated with population density.

      1. macroduck

        “But keeping the doors open in that county would not have done anything to help Michigan’s economy.” This is the lesson learned from the Spanish Flu that seems to escape the Faux New crowd. Judicious quarantine is the optimal economic policy in a highly contagious and deadly pandemic. Hall’s claim that keeping Michigan under partial shutdown is bad for the economy does not square with what we know.

        Could this time be different? Sure, but we have no reason to suspect it will be different in the direction Hall implies. One might consider, for instance, that urbanization has be underway for an additional century since the Spanish Flu, increasing population density and so increasing the pace of spread, all else equal.

        One might with better justification write “I find this interesting that the concern about Covid-19 impact on minority businesses does not extend to Texas’s governor who has crushed small businesses with his “open at all cost” refrain of keeping the state’s labor force and consumers in deadly peril.

        1. Baffling

          Texas will spike this summer and the big cities like houston and dallas are going to issue a new round of stay at home orders. The governor reopened the state too early. Icu beds are filling up fast. Houston will soon open a field hospital for covid. Well played by bunker boy and his republican governors.

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