The coronavirus crisis may have achieved something a decade of economic growth couldn’t: it sparked a boom in US entrepreneurship.
The decade-long slump in business start-ups was a permanent puzzle to the economy before the pandemic. Despite celebrity success stories from Silicon Valley, the rate at which Americans start businesses had steadily declined.
In a study published Wednesday, researchers at the Peterson Institute for International Economics found that Americans started 4.4 million businesses last year, up 24 percent from the previous year. It is by far the largest increase in its history.
The 2020 boom contrasts with the last recession when start-up activity declined, also because the financial crisis made it difficult for potential entrepreneurs to obtain funding. It also sets the United States apart from other rich countries, where start-up activity has generally decreased or increased only marginally over the past year. One likely factor is the trillions of dollars in government support to US households and businesses, far more than in previous recessions or in other countries.
“This is the first recession in 50 years when the money supply is greater than it was before the crisis,” said Simeon Djankov, one of the authors of the report.
The growth appeared to be strongest in the retail and warehouse businesses, possibly due to the boom in e-commerce during the pandemic. There has also been a notable increase in healthcare start-ups.
The report, which is based on data from the Census Bureau, defines entrepreneurship in general and covers everything from part-time freelancers to aspiring tech billionaires. Some businesses may be little more than side projects started by people stuck at home during the lockdown.
But a smaller group of startups, which the Census Bureau considers likely, also rose by 15.5 percent. If even a small fraction of them thrive, it could boost employment and productivity in the years to come, Djankov said.
“It’s enough for some of them to make breakthroughs,” he said.