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General Business

Pandemic’s Paradoxical Impact on Entrepreneurship

Focus NJ

The economic ramifications of the COVID-19 pandemic were often contradictory. 

Unemployment reached record levels, but workers quickly gained unprecedented power in the labor market. Many Americans relied on federal stimulus checks to make ends meet, but Americans’ savings and discretionary spending reached record levels. Businesses large and small were forced to shutter, in many cases permanently, but applications for new business reached all-time levels.

This last piece has remained a bit of a conundrum for the past four years and is a phenomenon that Focus NJ is frequently asked to try to explain. In New Jersey alone, the monthly average of new business applications jumped nearly 45%, increasing from 9,414 in 2019 to 13,645 in 2021. Many states have seen even greater increases.

Furthermore, these trends were not just the temporary effect of businesses reopening or existing operators filing for new ventures. Throughout 2023, the average number of new business applications in New Jersey was 13,400, still far surpassing pre-pandemic figures. 

The leading explanation to date, as noted as recently as September by the U.S. Treasury Assistant Secretary for Economic Policy Eric Van Nostrand, is an explosion in American entrepreneurialism and small business formation. Van Nostrand even went as far as to say that to date “no well-supported alternative explanation has been offered,” rejecting the hypothesis that this data is the simply the result of some kind of pandemic-era distortion. 

Related findings are closely aligned with the rise of remote work arrangements, which gave workers unprecedented flexibility, potentially opening a previously closed door to launch their own small business. Early academic research has supported this notion by finding that new business applications have been concentrated in sectors that particularly lend themselves to work-from-home setups.

For New Jersey, a key question will be how many of these businesses not only survive their initial years of operation, but go on to become employers. Most small businesses in New Jersey are nonemployer firms and lagging data from the Census Bureau suggests that much of the state’s growth in small businesses during the start of the pandemic also belonged to this category. 

To answer whether that is still the case in 2024 will require more data than is currently available, but will also tell us a lot about the nature of this potential new era of American entrepreneurialism and its impact on the state economy.

To access more business news, visit NJB News Now.

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