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 actual new employer businesses would follow. Evidence now shows increased employerbusiness entry with notable associated job creation; and industries and locations withthe largest increase in applications have had accompanying large increases in employerbusiness entry. We also observe a tight connection between the surge in applicationsand quits—or close proxies for quits—both at the national and local level. Withinmajor 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, andthese patterns are closely related with patterns of work-from-home activity. Reallocation of jobs across firm age, firm size, industry, and geography groupings increasedsignificantly. Relatedly, there is the beginning of a reversal of the pre-pandemic trendtoward greater economic activity being concentrated at large and mature firms, butthis reversal is quite modest in magnitude.
It is important to note that the 1 percent employment growth rate among large firms is substantial given that these firms account for roughly half of all employment, compared with the smallest size class whose share of employment is closer to one-sixth; at the same time, the smallest size class accounts for roughly 90 percent of all firms, so its 3 percent firm count growth rate reflects a large gain in the number of small firms.
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35 .5 0 .5 1Percentage points 10+5-91-4<1Firm ageChange in firm and employment shares, March 2020 to March 2022 FirmsEmployment 0 2 4 6 8 10Percent (annualized) 10+5-91-4<1Firm ageChange in firm count and employment, March 2020 to March 2022 FirmsEmploymentNote: Firms and firm age defined by EIN.Source: BLS Business Employment Dynamics (BED). 1 1.5 2.5 2
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Figure 22: Changing firm age distribution As just noted, a challenge associated with firm size distribution analysis is that firms may move either direction across the distribution. But an attractive feature of the BED is that statistics on what BLS denotes as dynamic sizing are provided. Dynamic sizing assigns firm job growth to the size bin in which it occurred. For example, if a firm increases from 0 (i.e., is a firm birth) to 35 over a window of time, the first 19 jobs added are attributed to the 1 19 size class, and the increase from 20 35 jobs is attributed to the 20 49 size class. Thus, dynamic sizing provides insights into how much of the change in employment observed by size class is due to firms moving across size classes relative to changes within size classes. The BED provides dynamic sizing-based job growth by firm size bin on a quarterly basis.30 The third panel of figure 23 reports both the actual change in the level of employment
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30See Helfand et al. (2007) for discussion of the BLS dynamic sizing methodology. 36 500 250 0 250 500 750 1,000 1,250Jobs (thousands) 500+50-49920-491-19Firm size (employees)Net employment change, March 2020 to March 2022 Change in levelsCumulative net change, dynamic methodNote: Firms defined by EIN. Dynamic method distributes net growth across size categories in which it occurs.Source: BLS Business Employment Dynamics (BED). .4 .2 0 .2 .4 .6Percentage points 500+50-49920-491-19Firm size (employees)Change in firm and employment shares, March 2020 to March 2022 FirmsEmployment .8 1 0 1 2 3 4Percent (annualized) 500+50-49920-491-19Firm size (employees)Change in firm count and employment, March 2020 to March 2022 FirmsEmployment .6 2 Figure 23: Changing firm size distribution 37
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