The Impact of COVID-19 on Small Business Dynamics and Employment: Real-Time Estimates with Homebase Data

Joint with Etienne Lalé (UQÀM) and Lien Ta (Drexel)

We use data from Homebasea scheduling and time clock software provider, to construct real-time estimates of the impact of the COVID-19 pandemic on small business dynamics and employment. Different from concurrent research, we match the Homebase records to information on business activity from Google, Facebook, and Safegraph to distinguish business closings and openings from sample churn. This distinction is critical to quantify the role played by business closings and openings.

The primary focus of our analysis is on small businesses with less than 50 employees in service-providing sectors that are among the hardest hit by the pandemic: Leisure & Hospitality, Retail Trade, Education & Health Services, and Other Services. We find three key results: 

(1) Small business employment in the four sectors contracted by an estimated 14 million between mid-February and mid-April – a staggering 46% decline – and then regained about 10 million by mid-June. This contraction in the beginning of the pandemic is much more severe than for employment of larger businesses, but small business employment also rebounded more strongly and has recovered as much as employment of larger businesses.

(2) Business closings account for more than half of the initial decline in small business employment, but 2/3 of closed businesses have reopened and cumulative closings are not higher than prior to the pandemic.

(3) New openings of small businesses have been almost as high as before the pandemic, constituting the main driver of the recovery since mid-June. 

Our results dispel the popular notion that small businesses have on average been hurt harder by the pandemic than larger businesses. At the same time, our analysis highlights the importance of comparing turnover during the pandemic with turnover prior to the pandemic since small businesses open and close at high rates even under the best of circumstances.

Last updated: March 14, 2021