COVID-19 is pounding US small business-owners. The dire details of this issue come from Robert Fairlie’s recent research paper in the *Journal of Economic Management and Strategy*.
The initial closing of enterprises, goods producing and service, to slow the pandemic’s spread, was harsh on mom-and-pop shops. “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,” according to Fairlie. “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 him. 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 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. Small business do not have the financial cushion to survive for long without paying customers. This is not rocket science.
Fairlie is a professor of economics at the University of California, Santa Cruz. He has testified to Congress on minority businesses struggles during the pandemic.
In his research paper, he found small business bounce back from April numbers in May and June of 7%, respectively. Against this backdrop, mom-and-pop firms have had uneven job creation since July. Small businesses of 1-49 employees created 63,000 jobs in July, 52,000 in August and 192,000 in September, according to ADP/Moody’s monthly jobs report for nonfarm private-sector payrolls only.
As reopened areas, such as nine zip codes in New York City, reclosed in early October due to rising coronavirus infections, a lack of clarity on the fate of small businesses temporarily shuttered looms large. What is clear at press time?
Federal policy is failing small businesses and their employees. For instance, with President Trump hospitalized for COVID-19 and the pandemic spreading throughout the White House and infecting members of the GOP-controlled Senate, Congress had not approved a new economic relief package to help constituents including small business owners. The CARES Act, Uncle Sam’s initial aid bill during the pandemic, lasted through the summer.
Meanwhile, consumers’ buying power is tepid, a partial impact of the slowdown in job creation and halt of pandemic unemployment assistance in late July. There was a shortfall of 10.7 million jobs from a February total in mid-September, according to other federal Labor Dept.
Another factor facing small businesses is a pandemic-caused fall in state and local government tax revenue. That will worsen the economic trend of weak demand and propel slower job creation, all things equal. One takeaway is that a full recovery of the labor market is years away, according to Elise Gould, a senior economist at the Economic Policy Institute, in the nation’s capital.
In the meantime, Small Business for America’s Future, an advocacy group based in Washington, DC, called on Congress to design a COVID-19 recovery plan for mom-and-pop shops across the country. For more information, visit https://www.smallbusinessforamericasfuture.org/
Seth Sandronsky lives and works in Sacramento. He is a journalist and member of the Pacific Media Workers.
From The Progressive Populist, November 1, 2020
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