The Labor Market’s Other Threat: Fewer New Businesses

April 27, 2020

The number of out of work Americans is staggering, with more than 25 million workers filing for unemployment as businesses shut down to stop the spread of COVID-19. However, a new analysis from the Wall Street Journal shows that the labor market is threatened in more ways than one. 

In examining Census Bureau data, the WSJ found a massive drop in business applications for new enterprises. Last week, there were 20% fewer applications than in the same period the year before. Moreover, applications for businesses with planned wages, meaning those looking to hire workers in addition to the proprietor, were down 31%. Over the last five weeks, these business applications were down an average of 35%.

This is important because of the churn that exists in the labor market. Under normal circumstances, thousands of businesses fail or layoff employees every year, but these losses are offset by new enterprises. Now, the nation faces millions of jobs lost and fewer new positions opening. 

The WSJ also spoke to an economist who explained that high-growth startups play a key role in job creation and economic growth. The analysis notes that part of the reason the previous recession dragged on for so long was a reduction in new startup activity.

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