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The pandemic created an American entrepreneurship boom — and it looks like it’s here to stay

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  • Americans filed over five million new business applications in 2022, the second most on record.
  • The pandemic may have given a “lasting, positive shock to American entrepreneurship.”
  • But many of these new businesses could fail if the US enters a recession.

The pandemic may have forever supercharged America’s entrepreneurial spirit.

Americans filed 5.1 million new business applications in 2022, according to US Census Bureau data, equating to roughly 14,000 new business applications filed every day last year. It marked the second-highest year on record — down slightly from 5.4 million in 2021 — and remained well above the 3.5 million filed in 2019. 

Of these applications, 1.7 million were for businesses that are likely to employ workers, according to an analysis by Economic Innovation Group, a bipartisan research organization. This also marked the second-highest year on record and exceeded the 1.3 million filed in 2019. In all 50 states, the number of these applications was higher than pre-pandemic levels.

“The steadiness in application levels exhibited over the course of 2022 offers optimism that the pandemic may have delivered a lasting, positive shock to American entrepreneurship,” EIG’s Daniel Newman and Kenan Fikri wrote in a report released this week. 

When the pandemic took hold, and Americans flocked to streaming entertainment, at-home fitness, food delivery, and ecommerce, many big established companies thought this shift would be a permanent acceleration — and hired in mass as a result. But today, businesses in these industries are reckoning with the possibility they got a bit ahead of their skis, and it’s taking the form of layoffs across companies like Meta, Netflix, Amazon, DoorDash, and Peloton.

The surge in US entrepreneurship, however, which has persisted through inflation, supply chain disruptions, and recession fears, may be a more true example of a permanent consequence of the pandemic era.

Experts have pointed to several explanations for the spike in new business applications in recent years. As millions of people lost their jobs in 2020, many decided to start businesses to make ends meet, a trend consistent with previous economic downturns. Childcare responsibilities pulled parents out of the labor force, and self-employment offered some the flexibility they needed. As workers reconsidered their working lives and sought job flexibility, some joined the Great Resignation and decided to work for themselves. Lastly, some people wagered starting a business was their best shot at getting ahead financially as inflation soared. 

The largest growth in new business applications has come from the southern region of the US — particularly Mississippi, Alabama, and South Carolina — with the region’s filings rising by more than a third compared to 2019 levels. On a per capita basis, Wyoming, Delaware, and Florida were the nation’s leaders in applications last year. Industry-wise, applications for transportation & warehousing, accommodation & food, and healthcare businesses have led the way. 

Many of the self-employment drivers, like the need for parents to stay home with their remote schooling children, are less relevant today, suggesting that perhaps America’s entrepreneurship levels will normalize in the years ahead. But the 2022 data suggests a new normal is possible. 

“The nature and long-term impacts of the boom will become clearer over time,” the EIG report said. “But this surge of supply-side experimentation suggests that the pandemic rekindled American economic dynamism at least to some extent.”

It might not be all roses ahead for new entrepreneurs, however.

While entrepreneurship is generally regarded as a positive force for the American economy, there’s the question of how many of these new businesses will ultimately fail. According to EIG, startups are “notoriously vulnerable,” and in “good years,” roughly one in every seven businesses less than five years old fails. In “bad years,” it’s closer to one-in-five. 

And if the US enters a recession, some businesses that launch during this period could be “permanently scarred.” 

“As the Federal Reserve continues tightening monetary policy and the probability of a recession rises, many of these new businesses — a significant chunk of which were likely founded by first-time entrepreneurs — may not survive,” the report said.

Read the original article on Business Insider