A sizable jump in the number of U.S. startups during the COVID-19 pandemic has been the strongest among Black communities, particularly those in higher-income areas of New York City, Houston and Atlanta and parts of Florida, according to a new report by the National Bureau of Economic Research, based on data from the Startup Cartography Project.
While other studies have identified an acceleration in entrepreneurship across the U.S. in 2020 versus 2019, this is the first to focus sharply on the pattern of new businesses formed in terms of race and socioeconomic status.
The study analyzed state-level business registrations from Georgia, Kentucky, New York, Tennessee, Texas, Vermont, and Washington and Florida.
In the NBER’s study, overall new-business registrations increased by 21% in 2020 over 2019. A total of 250,000 more new businesses were launched in 2020 versus 2019 across these states.
This uptick outpaced that associated with any previous economic disruption.
The study found significant heterogeneity in startup growth across the states tracked. New York City and Georgia had a 45% and 57% increase in startup formation, respectively, in 2020 versus 2019. Washington had a 6% improvement.
Improvements in the rate of entrepreneurship were not uniform within states. Among New York City's boroughs, Manhattan registered a decline in entrepreneurship relative to 2019. The Bronx and Brooklyn had a significant rise.
New business growth was the strongest in predominantly Black communities in Atlanta, Houston, New York City and southern Florida.
The report’s authors suggest that the expansion of new businesses formed in majority-Black communities in 2020 may be at least partly attributed to two central factors.
One is that job losses associated with the COVID-19 pandemic likely prompted some people to risk bootstrapping a business in order to make a living.
The urgency of finding a new source of income was more pronounced for Black adults, whose unemployment rate was 9.9% in the last quarter of 2020, nearly double the white unemployment rate of 5.8%, coupled with slower employment recovery gains.
What about the stimulus?
The NBER report cites a distinct correlation between federal relief initiatives amid the pandemic and the jump in small business formation in predominantly Black communities.
Startup growth in high-income Black neighborhoods declined by more than 50% in the weeks prior to the implementation of March 2020's $2.3 trillion Coronavirus Aid, Relief and Economic Security Act, then rose to 50% above 2019 levels three months afterward.
Within two weeks of the passage of the Supplemental Appropriations Act, startup growth in high-income Black communities also increased significantly.
Takeaway: The NBER's findings suggest that the pandemic’s broad-based federal economic relief initiatives played an active role in moderating persistent racial inequalities in entrepreneurship, changing the trajectory of entrepreneurship in the U.S.