Stakeholder Capitalism

34% of America’s small businesses are still closed due to COVID-19. Here’s why it matters

A sign reading "Sorry, we are closed" is seen on a closed restaurant in Cannes as the French government keeps bars and restaurants closed as part of COVID-19 restrictions measures to fight the coronavirus disease outbreak in France, January 11, 2021. REUTERS/Eric Gaillard - RC2S5L9ZJ0J1

Small businesses have been one of the hardest-hit sectors amid the pandemic. Image: REUTERS/Eric Gaillard

Iman Ghosh
Author, Visual Capitalist
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  • 99.9% of all businesses in the U.S. qualify as small businesses, collectively employing 47.3% of the nation’s private workforce.
  • They've been one of the hardest-hit sectors amid the pandemic.
  • Compared to January 2020, 34% of small businesses are closed.
  • San Francisco is one of the most affected metro areas, with a 48% closure rate of small businesses.
  • It's likely that this could exacerbate a 'K shaped' recovery.
a map of america showign the percentage of small businesses forced to close
Some areas have been worst hit than others. Image: Visual Capitalist

You can find a higher-resolution version of this map here.

In the business news cycle, headlines are often dominated by large corporations, macroeconomic news, or government action.

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While mom and pop might not always be in focus, collectively small businesses are a powerful and influential piece of the economy. In fact, 99.9% of all businesses in the U.S. qualify as small businesses, collectively employing almost half (47.3%) of the nation’s private workforce.

Unfortunately, they’ve also been one of the hardest-hit sectors of the economy amid the pandemic. From the CARES Act to the new budget proposal, billions of dollars have been allocated towards helping small businesses to get back on their feet.

Small business recovery in 50 metro areas

During the pandemic, many small businesses have either swiftly pivoted to survive, or struggled to stay afloat. This map pulls data from Opportunity Insights to examine the small business recovery rate in 50 metro areas across America.

So, has the situation improved since the last time we examined this data? The short answer is no—on a national scale, 34% of small businesses are closed compared to January 2020.

San Francisco is one of the most affected metro areas, with a 48% closure rate of small businesses. New York City has spiralled the most since the end of September 2020.

a chart small business closures in US cities
Small businesses have closed across the country. Image: Visual Capitalist

On the flip side, Honolulu has seen the most improvement. As travel and tourism numbers into Hawaii have steadily risen up with lifted nationwide restrictions, there has been a 16 p.p. increase in open businesses compared to September 2020.

Road to a K-shaped recovery

As of April 25, 2021, nearly 42% of the U.S. population has received at least one dose of a COVID-19 vaccine. However, even with this rapid vaccine rollout, various segments of the economy aren’t recovering at the same pace.

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How has the Forum navigated the global response to COVID-19?

Take for instance the stark difference between professional services and the leisure and hospitality sector. Though small business revenues in both segments have yet to return to pre-pandemic levels, the latter has much more catching up to do:

a chart showing how different revenue industries have been affected
For many in leisure and hospitality, revenue fell sharply and has yet to bounce back. Image: Visual Capitalist

This uneven phenomena is known as a K-shaped recovery, where some industries see more improvement compared to others that stagnate in the aftermath of a recession.

The entrepreneurial spirit endures

Despite these continued hardships, it appears that many Americans have not been deterred from starting their own businesses.

Many small businesses require an Employer Identification Number (EIN) which makes EIN applications a good proxy for business formation activity. Despite an initial dip in the early months of the pandemic, there has been a dramatic spike in EIN business applications.

a chart showing the rise of EIN business applications
There has been a dramatic spike in EIN business applications. Image: Visual Capitalist

Even in the face of a global pandemic, the perseverance of such metrics prove that the innovative American spirit is unwavering, and spells better days to come for small business recovery.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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Stakeholder CapitalismEconomic GrowthHealth and Healthcare Systems
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