UC Santa Cruz economics professor Rob Fairlie.
UC Santa Cruz economics professor Rob Fairlie gives testimony Thursday at a House hearing on impacts to small businesses during the pandemic.
(Screenshot / U.S. House of Representatives)
Recovery & Reopening

UCSC economist warns Congress of ‘alarming’ reversal in small business recovery

UC Santa Cruz professor of economics Rob Fairlie gave congressional testimony Thursday on the effects COVID-19 is having on small business owners across the country. He says minority owners have been disproportionately affected.

After small businesses shuttered at record rates across the U.S. in the early months of the pandemic, that sector of the economy inched back toward normalcy during the summer and fall.

In congressional testimony delivered Thursday, however, a UC Santa Cruz economist warned that more recent data shows a troubling reversal: A 6% backslide in small business activity across the U.S. in November and December.

Economy Watch

From keeping an eye on everything from businesses’ struggles to government finances, COVID Economy Watch is among eight Lookout initiatives documenting all aspects of the pandemic. For more, go to our COVID 2021 section, sign up for COVID Text Alerts and our COVID PM newsletter here, and leave feedback and ask questions at the end of this story.

Addressing the House Committee on Small Business at a special hearing on small businesses in the era of COVID-19, UC Santa Cruz professor of economics Rob Fairlie called the recent dip in business activity an “alarming” trend.

“From April to October, there was constant month to month improvements in business activity,” Fairlie said. “But in November in December, that pattern reversed.”

Graph of business ownership in the U.S.
Graph of business ownership in the U.S., as submitted to U.S. House of Representatives as part of testimony from UC Santa Cruz economics professor Rob Fairlie.
(Rob Fairlie via U.S. House of Represenatives)

Active business ownership had fallen by a staggering 22% from February through April of last year, Fairlie’s earlier research shows.

It was the largest drop-off on record, far exceeding the 5% dip recorded throughout the Great Depression.

And minority business owners were hit especially hard: The number of active African American business owners plummeted by 41%, followed by Latino owners, at 32%, and Asians, at 26%, Fairlie’s research found.

During the recent slide in business activity, the number of minority business owners fell between 5-10%, according to Fairlie. Data submitted with his testimony shows Asian business owners may be especially impacted.

Overall, the pandemic’s persistent business impacts are “especially alarming” for minority owners, he told the House committee, citing the persistent racial wealth gap and lower rates of business ownership pre-pandemic.

“Many minority business owners will simply not have the financial resources to weather prolonged closures,” Fairlie said.

Calculating small business’ overall loss in sales revenues during the pandemic has proved more challenging.

Using California data on taxable sales, Fairlie and his collaborators found average revenue losses of 17% in the second quarter of 2020. Revenue fell the most at businesses directly impacted by lockdowns, with hotels down 91%, restaurants 61% and clothing stores 51%, the team of researchers reported last month.

Fairlie was one of four witnesses to offer testimony at the Thursday hearing, appearing remotely alongside Sharon Pinder, president and CEO of the Capital Region Minority Supplier Development Council; Stephen Schoaps, owner of Strother Cinema in Oklahoma; and Karen Kerrigan, president and CEO fo the Small Business & Entrepreneurship Council.

Capping off his testimony, Fairlie laid out four recommendations to aid struggling small businesses and reach a clearer understanding of disproportionate economic impacts:

  • Speed the rollout of COVID-19 vaccines. “Consumers need to feel safe again,” he said.
  • Offer businesses more financial assistance in coming months, particularly rent relief protection which he called “crucial” for business survival.
  • Slow down the pre-pandemic shift to online shopping — while simultaneously helping small businesses improve online presence. Search engines, for example, could prioritize local businesses, he said.
  • Improve data collection on race in federal government relief efforts. The first two PPP rounds only “partially and unevenly” gathered demographic data, according to Fairlie; he said that information is key for future research on equity issues.