Firm growth in times of crisis

We use the full population of Belgian firms to examine the unequal impact of Covid-19 on firm growth. In doing so, we compare whether the response of firms to Covid-19 is different from the Great Recession of 2008. We find a significant decline in net employment growth during the first and second quarter of 2020, with an average loss of 4 and 19 percent in aggregate employment, respectively. We show that the aggregate picture masks significant heterogeneity among firms and that the Covid-19 crisis is different than the Great Recession. While small and medium-sized firms performed relatively well during the 2008 crisis, during the 2020 pandemic crisis they were hit harder compared to large firms. We find that the difference stems from the industry-specific effects of the shocks and the nature of the crises. However, we show that what really matters is firm age, which is even more relevant than firm size. Young firms contribute disproportionately to aggregate job creation an destruction and they respond more to major shocks. Policy should therefore target young firms rather than small firms to weather the crisis.