Research for Equity in Recovery: Small Businesses

The third event in the Research for Equity in Recovery series took place on July 30 and focused on how COVID-19 has impacted small businesses across sectors, firm sizes, and geography, as well as on how governments at all levels could advance and adapt programs like the Paycheck Protection Program to promote an equitable recovery. This session featured Marianne Bertrand, Professor, University of Chicago; Chi Mac, Small Business Research Lead, JPMorgan Chase Institute; and Maurice A. Jones, President and CEO, Local Initiatives Support Corporation (LISC). Timothy J. Bartik, Senior Economist, Upjohn Institute, moderated.

Marianne Bertrand began the event by presenting research on the makeup of the labor market negatively impacted by the pandemic, as well as the role of shutdown orders and economic interventions in exacerbating or slowing this decline. Job losses from February to April 2020 exceeded the entirety of those during the Great Recession, with far more businesses in the service and hospitality sector implementing layoffs than during this earlier period. Bertrand’s research shows that small businesses like restaurants and salons, which make up a significant part of this industry, saw a dramatic reduction in total hours worked during this period, with inconclusive signs of recovery even by mid-July. This collapse was not as severe among larger firms, which by the same time had nearly returned to baseline employment numbers. Bertrand’s research also indicates that many smaller or already distressed businesses were forced to close permanently at the onset of the pandemic, while economically and socially disadvantaged workers who lost their jobs in April were not likely to be rehired by June. Because this situation has outlasted temporary state shutdown orders, Bertrand contends that broader public health concerns are the primary cause of US economic decline since the onset of the pandemic. In addition, her research found no link between the lack of economic recovery and the disbursement of expanded unemployment benefits and Paycheck Protection Program (PPP) loans.

In her presentation, Chi Mac shared research on small-business owner demographics, the cash flow patterns of small businesses, and the communities that small businesses serve. Prior to the onset of the pandemic, Black- and Hispanic-owned small businesses generated significantly less revenue, had smaller profit margins, and held less cash reserves than their white-owned counterparts. While small businesses’ balances across demographics were reduced during the months of March and April, Mac found that the availability of PPP loans in late April disproportionately benefitted white-owned small businesses. While relief efforts like the PPP have bolstered small-business cash balances overall, Mac called for more targeted assistance to Black- and Hispanic-owned small businesses to help mitigate pre-existing disparities.

In his presentation, Maurice A. Jones described LISC’s efforts to aggregate funds for small-business grants and serve as a lender of PPP loans. Focusing on minority- and women-led small businesses, LISC has seen dramatic demand for assistance in covering rent, supplies, and vendor orders. Jones has found that while LISC grants have proven instrumental in allowing these small businesses to stay open during the pandemic, long-term reforms are likely necessary in the financial ecosystem on which these businesses depend. Since minority and women-led small businesses are typically served by Community Development Financial Institutions like LISC, Jones argued that a revised PPP should be crafted with such lenders in mind, rather than privileging mainstream financial institutions.

Following the presentations, Timothy J. Bartik moderated a conversation among the panelists, drawing on questions submitted by webinar participants. To download the presentation slides, click here.