Briefing

Will the Pandemic Surge in Employer Business Formation Last?

Abstract: Business applications — or applications for employer identification numbers (EINs) — surged at the beginning of the pandemic, more than doubling prepandemic levels of the early 2000s. While not every entrepreneur filing for an EIN is guaranteed to hire workers, this surge in business applications was followed by a strong increase in employer startups more than a year later, as establishment openings rose 45 percent. Interestingly, this rise in employer startups has remained elevated compared to prepandemic levels, although recent evidence indicates that this increase has been wearing off. In this article, we will argue that the pandemic rise in employer startups was only temporary and future heightened levels of business activity are more likely a continuation of prepandemic trends. Furthermore, we show that most sectors featuring a rise in job creation by startups have experienced almost no productivity growth in the past few years. As a result, it is unlikely that the temporary surge in employer startups has led to significant aggregative productivity gains.

Keywords: business formation; startups; productivity;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2025-01

Volume: 25

Issue: 1