Entrepreneurship in North Carolina during COVID 19: A Preliminary Investigation

<p>The COVID-19 pandemic caused large and lasting disruptions to labor markets. While this disruption was happening, however, data reveals that the economy had a hidden strain of hope and resilience via growth in the births of new establishments and employment associated with those births.&nbsp;</p>

Author: Emily Eisner

In North Carolina, and nationwide, the Census Bureau reports a dramatic increase in new business applications starting in the third quarter of 2020. Data from the Bureau of Labor Statistics’ Business and Employment Dynamics program also shows that new establishment births have grown significantly since the start of the COVID-19 pandemic. While employment gains coming from new establishment growth pale in comparison to the losses due to business contractions, they represent an emergence of healthy and resilient entrepreneurial activity in the state. By examining the Business and Employment Dynamics data for North Carolina, we get a better look at how much the birth of new establishments is contributing to private sector employment and economic activity in North Carolina.

Births constitute a subset of all establishment openings in the data, defined as establishments that have zero employment in the first quarter of the initial year and positive employment in the first quarter of the subsequent year. Figure 1 illustrates the large increase in establishment births in North Carolina that began at the onset of the COVID-19 pandemic. In fact, 2021 Q1 showed establishment births reached an all-time high of 13,262 since data started being collected in 1992. While establishment births deceased to roughly 10,000 in the next quarter, this level of births remains higher than most of the series.

Figure 1: NC private sector establishment births over time, seasonally adjusted (source)

Figure 2 plots the number of total new establishments (right axis) along with the employment gains associated with new establishment births (left axis) across the last two years. Several patterns are revealed from this visual: firstly, private sector employment from private sector establishment births and total establishment births generally maintain a ratio of 3 new jobs per birth and changed in the same direction from quarter to quarter (except for 2020 Q1 to 2020 Q2). This includes a massive increase from 2020 Q4 (~8,200 establishment births and ~25,000 new jobs from births) to 2021 Q1 (~13,000 establishment births and ~41,000 new jobs from births) and a decline to slightly-above-pre-pandemic levels from 2021 Q1 to 2021 Q2. Finally, this figure shows that from 2020 Q2 to 2020 Q3 and 2020 Q4 to 2021 Q1, establishment births increased at a faster rate than new employment from births.  If this trend holds, it may warrant further investigation: why is it happening? How does it compare to the national trend? Is this trend more exaggerated in specific industries or among firm size categories?

Figure 2: 2019 Q1 – 2021 Q2 private sector establishment births and associated new employment, seasonally adjusted (source)

Using North Carolina BED data, this blog highlights a short spurt of business growth and employment due to new business starts during the pandemic. While growth in new establishments is not responsible for the bulk of the economic recovery, this growth represents a positive sign for individuals’ investment in the future and resilience in the face of uncertainty and loss. New businesses also help produce stronger labor and goods markets by increasing competition and generating innovative ideas and products.

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