Has anyone ever explained this?
It just keeps going on and on. New business applications have been running more than 100,000 above trend ever since the start of the pandemic. By now it amounts to about 5 million excess applications.
Why would the pandemic have this effect? And why would it still be going strong four years later?
the bump is present in jan 2024 yoy 'High-Propensity Business Applications' and if you look at the the chart you can see a similar bump in 2006-2007 which was the peak of the housing bubble
https://www.census.gov/econ/bfs/visualizations/geovisualization.html
definition of high-propensity business application
https://www.uschamber.com/co/start/strategy/high-propensity-business
wyoming (38%) and maine (35%) were high, both small states and increases from such a low base might be noise
washington state (up 30%) had a lot of new bus creation and also had a lot of tech layoffs
colorado (28%) pennsylvania (23%) and oregon (20%) were also high
regionally the west (7%) was on top, south (4.2%) was on the bottom
i'm guessing the combination of tech layoffs (ie., people with $$$ to start a business) and maybe biden's green/electrification efforts were significant drivers
Wyoming and Maine are both very small (population wise) states; and they became refuges from people who can work anywhere during the pandemic.
For the first time in decades, Maine (my home state) has gained people.
But the 35% surge, while large for Maine, Nationally is still a very very small number of business starts.
I know I am biased based upon my social circle but I do think the tech layoffs are a part of it. People I know to be good at what they do are getting laid off, moving to another company which then has a round of layoffs 6-12 months later. When a "stable" job isn't and you have free time and capital then starting up a business seems like a good option. Many of these people are not necessarily entrepreneurial or business focussed so there will be a lot of washouts but for the time being they have their businesses. Also business dissolution rates almost never match creation rates because so many smaller companies just fade away gradually. One person might have multiple LLCs, only one of which is truly active.
Applications for new businesses surprisingly surged during the COVID-19 pandemic, rising the most in industries rooted in pandemic-era changes to work and lifestyles. The unexpected surge in applications raised questions about whether a surge in ac- tual new employer businesses would follow. Evidence now shows increased employer business entry with notable associated job creation; and industries and locations with the largest increase in applications have had accompanying large increases in employer business entry. We also observe a tight connection between the surge in applications and quits—or close proxies for quits—both at the national and local level. Within major cities, applications, net establishment entry, and our quits proxy each exhibit a “donut pattern,” with less growth in city centers than in the surrounding areas, and these patterns are closely related with patterns of work-from-home activity. Reallo- cation of jobs across firm age, firm size, industry, and geography groupings increased significantly. Relatedly, there is the beginning of a reversal of the pre-pandemic trend toward greater economic activity being concentrated at large and mature firms, but this reversal is quite modest in magnitude
Surging Business Formation in the Pandemic: Causes
and Consequences?
So not uber drivers incorporating themselves to protect their assets should they get sued?
I suspect a lof of it is related to work from home. If you realize you no longer need the support of an office, the leap to self-employment seems easier. Relatedly, I bet in some cases it's folks converting their status from employee to consultant. I also wouldn't be surprised if some of these business formations are folks who got used to no longer having to go to an office, and when their employer said it was time to start coming in again regularly, they said "thanks but no thanks."
This is my thinking as well. People started hobby-based side hustles during the pandemic, then spun them up into small businesses during and after the pandemic. Especially for anyone that was able to remain WFH, remove 1 to 3 hours of commuting a day (depending on local traffic) and that's a not insignificant amount of time per week that you can continue your side hustle. And anyone that succeeded wildly in their side hustle may have had the means to quit their old job and turn the side hustle into their main hustle.
EDIT: The various remote work tech advancements made during the pandemic would have also made running a small business out of your home significantly easier than before too.
As Amos says in the Expanse: it's the churn.
Is there a corresponding boom in business failures?
figure 2 has establishment birth/death rates
https://www.whitehouse.gov/cea/written-materials/2024/01/11/new-business-surge-unveiling-the-business-application-boom-through-an-analysis-of-administrative-data/
Thanks!
only tangentially related
(Bloomberg) -- Americans with disabilities have been a driving force in building back the nation’s post-pandemic labor market, and JPMorgan Chase & Co. says there are more gains to be had.
Despite only making up about 12% of the US adult population, those with disabilities account for nearly a third of the growth in the labor force over the past three years, JPMorgan’s Chief US Economist Michael Feroli said in a note Wednesday. Participation rates for both disabled men and women both hit records last year and are still hovering near those levels, according to the Bureau of Labor Statistics.
“Structural changes in work arrangements, income support programs, and therapeutic interventions may all contribute to a trend improvement in participation rates for the disabled,” Feroli said. “But the sharp improvement over the last few years likely owes to the high-pressure labor market.”
https://www.bnnbloomberg.ca/disabled-americans-propel-a-third-of-post-covid-workforce-gains-1.2034935
Obviously it's to Trump's credit, like Taylor Swift's success and the stock market boom.
OR . . . obviously it's because when it became obvious that Biden was going to win in 2020, it triggered a surge in the founding of woke corporations.
During the pandemic a lot of businesses failed, and this created opportunities for new businesses to take their place as things returned to normal. But that doesn't explain why it's stayed high, or why it spiked well before normalization.
We underestimate how much habit and routine govern our lives. The pandemic disrupted them. Most people most of the time have reverted mostly to old habits and routines, but the disruption made it easier for people to consider new pathways and the cash from the feds greased the way.
If my theory is right, there will be a reversion to the past. If I'm wrong, it will be the first time. 🙂
I suspect part of it is insurance/healthcare related. Covid forced a lot of job churn, which forces insurance churn, not to mention a lot of people interacting with insurance.
Some number of people ended up on Obamacare, which removes a serious concern for those who think about starting a job but can't risk losing insurance.
That's obviously not the whole story, but I suspect it is a minor part of it.
God damn it. Effing Dark Brandon!
You're stuck at home; you're getting a healthy unemployment check; you have a computer and access to the interwebs.
Why wouldn't you start a business of some sort?
We've been seeing a number of small businesses open in our town. For example, there are two new bakeries, several restaurants, a car repair place and a few others. I think there have been a number of reasons:
- COVID's disruption got a lot of people thinking about their lives and opportunities.
- COVID relief provided a bit of money, so for the first time in possibly decades, people had two coins and a rent deposit to rub toether.
- COVID remote work had people moving to towns like ours bringing their money and lifestyles with them. It is now almost easy to get an Uber/Lyft ride.
- COVID increased internet commerce awareness, so a lot more local stores and businesses, including new businesses, have a marketing plan.
- Baby boomers have been retiring and closing their businesses which opens new niches for new businesses.
- Baby boomers who have retired are now exploring their business fantasies and making plans. I know at least two of these, and I've seen others.