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Startups and employment following the COVID-19 pandemic: a calculator

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  • Cristiana Benedetti-Fasil
  • Petr Sedláček
  • Vincent Sterk

Abstract

Early indicators suggest that startup activity across countries is heavily affected by the COVID-19 pandemic and the associated lockdowns. At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups and (iii) the survival rate of young firms. We apply our calculator to the United States and four European countries: France, Germany, Italy and Spain. We find that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived. Almost half of the long-run losses is caused by fewer high-growth firms, ‘gazelles’, starting up during the pandemic. Our results also suggest that the long-run effects of the pandemic may vary across countries substantially with Germany possibly being shielded due to its low business dynamism.

Suggested Citation

  • Cristiana Benedetti-Fasil & Petr Sedláček & Vincent Sterk, 2022. "Startups and employment following the COVID-19 pandemic: a calculator," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(111), pages 507-533.
    • Handle: RePEc:oup:ecpoli:v:37:y:2022:i:111:p:507-533.
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    Cited by:

    1. Samet Gunay & Walid Bakry & Somar Al-Mohamad, 2021. "The Australian Stock Market’s Reaction to the First Wave of the COVID-19 Pandemic and Black Summer Bushfires: A Sectoral Analysis," JRFM, MDPI, vol. 14(4), pages 1-19, April.
    2. Suphanit Piyapromdee & Peter Spittal, 2020. "The Income and Consumption Effects of COVID‐19 and the Role of Public Policy," Fiscal Studies, John Wiley & Sons, vol. 41(4), pages 805-827, December.
    3. Thomas Gries & Wim Naudé, 2021. "Extreme Events, Entrepreneurial Start-Ups, and Innovation: Theoretical Conjectures," Economics of Disasters and Climate Change, Springer, vol. 5(3), pages 329-353, October.
    4. Christoph Albert & Andrea Caggese & Beatriz González, 2020. "The short- and long-run employment impact of Covid-19 through the effects of real and financial shocks on new firms," Economics Working Papers 1739, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Camino-Mogro, Segundo, 2020. "Turbulence in startups: Effect of COVID-19 lockdown on creation of new firms and its capital," MPRA Paper 104502, University Library of Munich, Germany.
    6. Naudé, Wim, 2020. "Entrepreneurial Recovery from COVID-19: Decentralization, Democratization, Demand, Distribution, and Demography," GLO Discussion Paper Series 631, Global Labor Organization (GLO).
    7. Markus Brueckner & Joaquin Vespignani, 2021. "COVID‐19 Infections and the Performance of the Stock Market: An Empirical Analysis for Australia," Economic Papers, The Economic Society of Australia, vol. 40(3), pages 173-193, September.
    8. Anna Cororaton & Samuel Rosen, 2021. "Public Firm Borrowers of the U.S. Paycheck Protection Program [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(4), pages 641-693.
    9. Morten Bennedsen & Berthe Larsen & Ian M. Schmutte & Daniela Scur, 2020. "Preserving job matches during the Covid-19 pandemic: firm-level evidence on the role of government aid," CEP Occasional Papers 51, Centre for Economic Performance, LSE.
    10. Shyngys Karimov & Jozef Konings, 2021. "How lockdown causes a missing generation of start-ups and jobs," International Economics and Economic Policy, Springer, vol. 18(3), pages 457-473, July.
    11. Mina, Andrea & Santoleri, Pietro, 2021. "The effect of the Great Recession on the employment growth of young vs. small firms in the Eurozone," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 184-194.
    12. Enesiti Chirume, 2021. "The Effects of Covid-19 on the Financial Sector and the Role of Social Media as an Advertising Tool in these Trying Times in Zimbabwe," Journal of Economics and Behavioral Studies, AMH International, vol. 13(2), pages 8-15.
    13. Naudé, Wim, 2020. "Industrialization under Medieval Conditions? Global Development after COVID-19," GLO Discussion Paper Series 704, Global Labor Organization (GLO).
    14. Carsten Bergenholtz & Kim Klyver & Oana Vuculescu, 2023. "Self-Efficacy in Disrupted Environments: COVID-19 as a Natural Experiment," Entrepreneurship Theory and Practice, , vol. 47(3), pages 724-750, May.

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I10 - Health, Education, and Welfare - - Health - - - General

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