Discussion Paper

Many Small Businesses in the Services Sector Are Unlikely to Reopen


Abstract: The services sector was hit hard during the COVID-19 pandemic. Small businesses were particularly affected, and many of them were forced to close. We examine the state of these firms using micro data from Homebase (HB), a scheduling and time tracking tool that is used by around 100,000 businesses, mostly small firms, in the leisure and hospitality and retail industries. The data reveal that 35 percent of businesses that were active prior to the pandemic are still closed and that most have been inactive for twenty weeks or longer. We estimate that each additional week of being closed reduces the probability that a business reopens by 2 percentage points. Moreover, an additional week of business closure lowers the share of workers that are rehired at reopening. Our estimates imply that only about 4 percent of the workers that are still laid off from the currently closed businesses will eventually be rehired by these businesses.

Keywords: COVID-19; labor market; unemployment;

JEL Classification: E24; I15;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2021-05-05

Number: 20210505