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Economy / Business Climate

Some Estimates on the Impact of Covid-19 on Small Business

By Patrick Tuohey on Apr 20, 2020
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BreizhAtao/Shutterstock

A working paper by the National Bureau of Economic Research (NBER), authored in part by Dr. Ed Glaeser of Harvard University, asks: How Are Small Businesses Adjusting to Covid-19? The report is brief and is worth reading in its entirety, however here are a few key takeaways from the data:

  • 41.4 percent of businesses reported that they were temporarily closed because of COVID-19. A far smaller number—1.8 percent—reported that they were permanently closed because of the pandemic. By contrast, only 1.3 percent reported that they were temporarily closed for other reasons. 55.4 percent reported that they were still operational.
  • Approximately one-fourth of firms have cash on hand totaling less than one month’s worth of expenses. About one-half of firms have enough cash on hand to cover between one and two months of expenses.
  • More than 64 percent reported that it is very or extremely likely that they would be open on December 31, 2020—which is used as a measure of the probability of being open. A growing literature has found entrepreneurs to be overoptimistic about their prospects

It is completely appropriate for policymakers in Missouri and across the country to debate the efficacy and appropriateness of aid to small businesses. As with aid to municipalities, we do not want to reward bad decision-making with public funds. But as Glaeser and his co-authors point out, the impact of the virus and the public response is great and already with us.

While I am often skeptical of government intervention in the economy, it is difficult to argue that there is no role for government here. After all, even the most ardent Objectivists over at The Atlas Society understand that there we are in unprecedented times. For anyone who wants to consider exactly how unprecedented, this NBER paper is a good start.

 

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About the author

Patrick Tuohey

Senior Fellow of Municipal Policy

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