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2020-07-22 1 ENGLISH REPORTS
Much attention has been given to the preservation of small businesses in the current recession. The $2 trillion stimulus package signed into law on March 27 makes special provisions to support small businesses through a large expansion in federal small business loans, and a second tranche of small business loan appropriations was signed on April 24. Such focus is not unfounded. Large though it may be, COVID-19 is likely to be a mostly temporary shock to the economy. Therefore, a primary determinant of the speed of recovery from this crisis may be the extent to which irreversible dis-investments occur. Financially-constrained fifirms, such as small and young businesses, may be forced to close if they are unable to pay their employees in the short run. If this happens, the recovery from this crisis may be far more protracted. Indeed, a JP Morgan study from 2016 found that roughly half of small businesses did not have a large enough cash buffffer to support 27 days without revenue.12 The changes in employment documented in Figure 2 are broad-based throughout the economy but also exhibit substantial heterogeneity across industries and businesses of diffffering size. Figure 3 plots the change in employment by initial business size relative to February 15th.
The results by fifirm size are not overly surprising in light of the industry results documented next. The industries that were hit hardest in the beginning of the pandemic recession also tend to be the industries with the smallest businesses as documented by Hurst and Pugsley (2011). Table 1 shows employment changes by two-digit NAICS industries during two time periods: Feb 15-April 25th (the aggregate employment trough, prior to states starting to re-open) and Feb 15 - May 30 (over the entire period). These results are shown in columns 1 and 2 of the table, respectively. The largest declines in employment were in sectors that require substantive interpersonal interactions. Through late-April, paid employment in the “Arts, Entertainment and Recreation” and “Accommodation and Food Services” sectors (i.e., leisure and hospitality) both fell by more than 45 percent while employment in “Retail Trade” fell by almost 30 percent. Another two-digit industries that experienced declines in employment of nearly 30 percent through late-April is“Other Services” which includes many “local” or neighborhood businesses like laundromats and hair stylists. Despite a boom in emergency care treatment within hospitals, the “Health Care and Social Assistance” industry experienced a 16.5 percent decline in employment through late April. Industries that employ higher-educated workers—like Finance/Insurance and Professional/Scientifific Services—only saw smaller employment declines.
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