The Covid-19 crisis may have accomplished something that a decade of economic growth could not: It spurred a boom in U.S. entrepreneurship.
An enduring mystery of the pre-pandemic economy was the decades-long slump in business formation. Despite high-profile Silicon Valley success stories, the rate at which Americans start companies had been steadily declining.
But in a study released on Wednesday, researchers at the Peterson Institute for International Economics found that Americans started 4.4 million businesses last year, a 24 percent increase from the year before. It is by far the biggest increase on record.
The 2020 boom stands in contrast to the last recession, when start-up activity fell, in part because the financial crisis made it hard for would-be entrepreneurs to get funding. It also sets the United States apart from other rich countries, where start-up activity generally fell last year or rose only slightly. One likely factor is the trillions of dollars in government support for U.S. households and businesses, far more than was available in past recessions or in other countries.
“This is the first recession in the last 50 years where the supply of money is larger than before the crisis,” said Simeon Djankov, one of the report’s authors.
Growth appeared to be strongest in retail and warehouse businesses, perhaps reflecting the boom in e-commerce during the pandemic. There was also a notable increase in health care start-ups.
The report, based on data from the Census Bureau, defines entrepreneurship broadly, covering everything from part-time freelancers to aspiring tech billionaires. Some businesses may be little more than side projects begun by people stuck at home during lockdown.
But a narrower subset of start-ups that the Census Bureau deems likely to hire also rose, by 15.5 percent. If even a small share of them thrive, it could bolster employment and productivity in coming years, Mr. Djankov said.
“It’s enough for a few of them to make breakthroughs,” he said.