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Think Small for an American Recovery

Small businesses play an outsize role in the US economy, accounting for about half of all private-sector employment and nearly two-thirds of all net new job creation since 2000. And federal support for them is crucial to avoid a prolonged, anemic, and uneven recovery that leaves many marginalized communities behind.

BERKELEY – The US recovery is losing momentum. Job growth is slowing, the economy is still down 10.7 million jobs since February, and 36% of unemployed workers are now classified as “permanently unemployed.” The unemployment rate fell to 7.9% in September not because of an uptick in job creation, but because of an exodus of people from the labor force. Reflecting the dualism of the US labor market, the unemployment rates remain even higher for African-Americans (12.1%) and Hispanics (10.3%), and an additional 6-8 million people have fallen into poverty.

With COVID-19 infection rates rising and fiscal stimulus measures ending, nowhere are the pain and downside risks of a faltering recovery more apparent than in the already hard-hit small-business sector. Small businesses, defined as those with fewer than 500 employees, play an outsize role in the US economy, accounting for about half of all private-sector employment and about 65% of all net new job creation between 2000 and 2018. Between January and September of this year, the number of small businesses in operation fell by one-quarter, and small-business revenues declined by 23%. Important small-business sectors such as retail, transportation, leisure, hospitality, education, health, and other personal services have suffered the largest revenue and employment losses.

Minority-owned and female-owned businesses – employing about 8.7 million people – have been especially vulnerable. On the eve of the COVID-19 recession, around half of African-American and Latinx-owned businesses were already financially “at risk or distressed,” and many lacked the cash reserves to cover a two-month revenue loss. Making matters worse, minorities own 25% of the small businesses in sectors hit hardest by the pandemic, compared to around 15% in less-affected ones. African-American small businesses have been especially hard-hit, experiencing a 41% drop in business activity, while Latinx small business activity has declined by 32% and business activity in female-owned small businesses has declined by 25%, compared to a decline of 17% for white-owned businesses.