Startups boom in the United States during COVID-19
This excerpt is taken from Peterson Institute for International Economics.
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Despite a health catastrophe and one of the worst economic downturns in modern history, startup business activity grew in the United States last year—business startups[1] grew from 3.5 million in 2019 to 4.4 million in 2020, a 24 percent increase. The number of new businesses also increased in Chile, Turkey, and the United Kingdom. Other economies were not so vibrant: New business formation declined by a quarter in Portugal and Russia. Startup activity in China barely budged, growing by 3 percent in the first three quarters of 2020 relative to 2019.
Economic crises are periods of “creative destruction,” where new ideas and ways of doing business come to the fore, a phenomenon famously described by the Austrian economist Joseph Schumpeter in the 1930s. No data are available yet to measure the number of businesses destroyed in 2020, because business data for firms that close without entering bankruptcy is lagging. Early evidence shows that by the end of 2020, around 9.1 million small businesses were temporarily or permanently closed,[2] and 9 million jobs were lost during the downturn. Nor is it easy to generalize about the new businesses starting up. But some of them reflected a shift to new technology-based ways to carry out the same business. Firms have been reborn after investing in digital applications. Workers have learned how to use remote databases and reach their customers over social media. The office was becoming virtual even before the pandemic and may remain so post-COVID-19 in some sectors of the economy.
There is a widespread perception that small businesses create the most jobs in the United States and other advanced economies. Research suggests that it is new businesses, not small ones, that create these jobs (Haltiwanger et al. 2013). Studying the patterns in startup activity is hence an indicator of future employment growth.
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