Starting a business takes time, effort and money. It also requires substantial personal sacrifice. For many entrepreneurs, building a successful new business is a life-long pursuit and provides tremendous personal satisfaction.
The COVID-19 pandemic prompted a surge in new business applications that has since subsided. To some observers, this reflects a return to the traditional view that downturns are good times for new businesses, as competition may be weak and inputs (labor, supplies) relatively cheap. To others, the recent surge reflects the fact that many people who would not ordinarily start a new business had to do so in order to make ends meet during the pandemic.
One key question is whether the surge in business creation is sustainable. In other words, will the number of new businesses rise or fall when the economy recovers? To help answer this, we have examined data from the Census Bureau’s Business Dynamics Statistics (BDS), which tracks business formation as it transitions from an EIN filing form to a real employer with payroll.
The BDS data show that the rate of new business formation has risen during the recovery and that this rise is driven by an increase in new jobs being created in the private sector. This suggests that the rate of business creation will fall back to its historical trend once unemployment returns to normal levels. We also provide empirical descriptions of ten important features associated with the start-up process using rich data from representative samples of nascent enterprises.