New Business Opportunities and Enhanced Resilience Resulting from Covid-19

The abrupt onset of Covid-19 disrupted the US and global economy. After the initial shock, the US saw persistently large increases in new-business applications, reversing a downward trend since the late 1970s. Since new and small businesses create more net jobs and provide more economic benefits to communities, understanding factors associated with their creation is important in crafting greater regional-economic resilience and long-term economic growth. Since the size of this change varies geographically, a good question is whether startups were created out of necessity due to job losses and other difficulties, or to exploit potential new opportunities formed in the pandemic’s wake. Using US state-level data, we find “necessity†reasons best explain growing state-level applications. Moreover, we do not find state-by-state parallel shifts in applications, but rather widespread changes in how startups respond to different underlying factors pre- and post-Covid (i.e., not from a post-Covid state dummy-variable parallel-shift or trend-shift but by different post-Covid regression coefficients for the control variables). Self-employment’s role in creating female-employment opportunities and supporting entrepreneurial culture appear to be significant, especially due to behavioral changes among women ages 25-44, with childcare availability being one intervening consideration. In sum, an ironic outcome of the pandemic is it helped local economies become more resilient by generating more startups.