Small Business Impact of COVID-19: Insights from California Professor
Discover the in-depth analysis by a UC Santa Cruz Economics Professor on the effects of the pandemic on small businesses, with a focus on minority business owners. Gain valuable insights into the challenges faced and changes in the number of active business owners pre and post-COVID-19.
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California Small Businesses in the Pandemic California Small Businesses in the Pandemic Robert Fairlie Professor of Economics University of California, Santa Cruz Assembly Select Committee on Small Business & Entrepreneurship Build Back Better: Pandemic Recovery for Small Businesses July 12, 2021
Background Background I am a Professor of Economics at the University of California, Santa Cruz and have studied entrepreneurship, racial inequality and small business policy for over 25 years. Obtaining up-to-date and accurate information on the effects of the pandemic has been extremely difficult. I have spent the past year compiling and analyzing data to investigate what happened to small business owners, especially minority business owners. Most of my research has focused on the nation as a whole, but I have calculated estimates for California for this hearing.
COVID COVID- -19 and Small Business Owners 19 and Small Business Owners March 11, 2020: The World Health Organization (WHO) declared COVID-19 a pandemic. By early April: most states imposed social distancing restrictions What happened to small business owners?
Number of Active Business Owners in the United States (January 2005 - April 2020) 18,000,000 16,000,000 14,000,000 12,000,000 April 2020 10,000,000 8,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Number of Active Business Owners before and after COVID-19 (Racial Minority Groups) 2,500,000 2,000,000 Number of Self-Employed Business Owners 1,500,000 -32% 1,000,000 -41% -26% 500,000 0 African-American Latinx Asian Feb-20 Apr-20
What Happened since April? What Happened since April?
Figure 1 Number of Active Business Owners in the United States (Jan. 2019 - June 2021) 18,000,000 16,000,000 October 2020 14,000,000 February 2021 12,000,000 April 2020 10,000,000 8,000,000 2019 2019.25 2019.5 2019.75 2020 2020.25 2020.5 2020.75 2021 2021.25 2021.5
Number of Active Business Owners in the United States by Race (Jan. 2019 - June 2021) 3,000,000 2,000,000 1,000,000 April 2020 0 2019 2019.25 2019.5 2019.75 2020 2020.25 2020.5 2020.75 2021 2021.25 2021.5 Black Latinx Asian
What Happened in California? What Happened in California?
Figure 1: Number of Active Business Owners in California (Jan. 2019 - June 2021) 3,000,000 2,500,000 Oct. 2020 2,000,000 Feb. 2021 1,500,000 Apr. 2020 1,000,000 2019 2019.25 2019.5 2019.75 2020 2020.25 2020.5 2020.75 2021 2021.25 2021.5
Figure 2: Number of Active Business Owners in California by Race (Jan. 2019 - June 2021) 1,000,000 500,000 0 2019 2019.25 2019.5 2019.75 2020 2020.25 2020.5 2020.75 2021 2021.25 2021.5 Black Latinx Asian
Sales Losses in California Sales Losses in California It has been especially difficult to figure out how much small businesses have lost in sales and revenues in the pandemic. We suspect that losses have been great but data on actual losses in sales are very difficult to find. Using taxable sales data from the California Department of Tax and Fee Administration (CDTFA), we examined average sales losses in the second quarter of 2020.
California Taxable Sales (Year-over-Year Change) 2018 Q1 to 2020 Q4 10 5 4.95 4.92 4.76 4.67 3.91 3.59 3.12 1.55 0.57 0 -0.18 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 -3.15 -5 -10 -15 -15.4 -20
YOY Sales Losses by Quarter 2019 to 2020 20.0% 0.0% Total Restaurants Accommodations -20.0% -40.0% -60.0% -80.0% -100.0% 2020 Q1 2020 Q2 2020 Q3 2020 Q4
Sales Growth Percent (2019Q2 to 2020Q2) Selected Business Types with Large Losses and Gains 200 175 150 125 100 75 50 25 0 1 -25 -50 -75 -100 -125 Accommodation Drinking Places (Alcoholic) Arts, Entertainment, and Rec Full-Service Restaurants Gift, Novelty, and Souvenir Clothing Stores Book Stores and News Dealers Gasoline Stations Supermarkets and Other Grocery Lawn and Garden Equipment Pharmacies and Drug Stores Beer, Wine, and Liquor Building Material and Supplies Agric., Forestry, Fish and Hunt Nonstore Retailers
YOY Sales Losses by Quarter 2019 to 2020 200.0% 150.0% 100.0% 50.0% 0.0% Total Restaurants Accommodations Nonstore Retailers -50.0% -100.0% -150.0% 2020 Q1 2020 Q2 2020 Q3 2020 Q4
What Can We What Can We Do to Move Forward? Do to Move Forward? 1. More financial assistance is needed for small business owners especially for minority-owned businesses. Median net worth of black families is $9,567 and Latinx families is $25,000 2. We need to slow down the extensive shift to online shopping which was happening prior to the pandemic. Shop local! 3. Small businesses need to have more of an online presence. Aid in the form of web page assistance could be useful. 4. Search engines could prioritize local small businesses instead of online retailers and big box stores.
References References Fairlie, Robert W. 2020. "The impact of COVID-19 on small business owners: The first three months after social-distancing restrictions." Journal of Economics & Management Strategy, 29(4): 727-740. Fairlie, Robert, and Frank Fossen. 2021. Sales Losses in the First Quarter of the COVID-19 Pandemic: Evidence from California Administrative Data, NBER Working Paper No. 28414. Fairlie, Robert, and Frank Fossen. 2021. Did the $660 Billion Paycheck Protection Program and $220 Billion Economic Injury Disaster Loan Program Get Disbursed to Minority Communities in the Early Stages of COVID-19? NBER Working Paper No. 28321. Ongoing Small Business Activity Tracking: https://people.ucsc.edu/~rfairlie/recent/
