Business Formation: A Tale of Two Recessions - CES 21-01 - January 2021

Sep 19, 2026

The trajectory of new business applications and transitions to employer businesses diverges sharply between the Great Recession and the COVID-19 Recession. After the Lehman crisis, both applications and employer-startup transitions fell gradually yet persistently. In contrast, COVID-19 saw an initial decline in new applications followed by a sharp rebound, producing a 2020 surge. Transitions to employer businesses also rise but are muted as 2020 applications shift toward non-employers.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages13

Reading Time5 min

AccessFree to download

Abstract

Measuring business formation

Data and approach

Key findings

Business Formation: A Tale of Two Recessions by Emin Dinlersoz U.S. Census Bureau Timothy Dunne University of Notre Dame John Haltiwanger University of Maryland Veronika Penciakova Federal Reserve Bank of Atlanta CES 21-01 January 2021 The research program of the Center for Economic Studies (CES) produces a wide range of economic analyses to improve the statistical programs of the U.S. Census Bureau. Many of these analyses take the form of CES research papers. The papers have not undergone thereview accorded Census Bureau publications and no endorsement should be inferred. Any opinions and conclusions expressed herein are those of the author(s) and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Republication in whole or part must be cleared with the authors. To obtain information about the series, [see www.census.gov/ces](see www.census.gov/ces) or contact Christopher Goetz, Editor, Discussion Papers, U.S. Census Bureau, Center for Economic Studies 5K038E, 4600 Silver Hill Road, Washington, DC 20233, [CES.Working.Papers@census.gov](CES.Working.Papers@census.gov. To)[. To](CES.Working.Papers@census.gov. To) subscribe to the series, please click here. Abstract The trajectory of new business applications and transitions to employer businesses differ markedly during the Great Recession and COVID-19 Recession. Both applications and transitions to employer startups decreased slowly but persistently in the post-Lehman crisis period of the Great Recession. In contrast, during the COVID-19 Recession new applications initially declined but have since sharply rebounded, resulting in a surge in applications during 2020. Projected transitions to employer businesses also rise but this is dampened by a change in the composition of applications in 2020 towards applications that are more likely to be nonemployers. * We thank Shawn Klimek and Scott Ohlmacher for helpful comments. Any opinions and conclusions expressed herein are those of the authors and do not represent the views of the U.S. Census Bureau, the Federal Reserve System, Board of Governors, or their staff. The Census Bureau’s Disclosure Review Board and Disclosure Avoidance Officers have reviewed this data product for unauthorized disclosure of confidential information and have approved the disclosure avoidance practices applied to this release (Approval Number CBDRB-FY21-062) . John Haltiwanger is also a part-time Schedule A employee of the Census Bureau. Dinlersoz: [emin. m.dinlersoz@census.gov](emin. m.dinlersoz@census.gov) Dunne: University of Notre Dame; [tdunne1@nd.edu](tdunne1@nd.edu) Haltiwanger: [haltiwan@econ.umd.edu](haltiwan@econ.umd.edu) [Penciakova: veronika.penciakova@atl.frb.org](Penciakova: veronika.penciakova@atl.frb.org) How have recent recessions affected business formation? The startup rate of new employer businesses declined sharply in the Great Recession and rose slowly in the subsequent recovery. Indeed by 2018, the startup rate remained 24% lower than in 2006 (see online appendix) . Thereis evidence that the COVID-19 Recession is leading to widespread business closure (Leland Crane, Ryan Decker, Aaron Flaaen, Adrian Hamins-Puertolas and Christopher Kurz, 2020), but less is known about its impact on business formation. In this paper, we use a new Census Bureau data series on applications for Employer Identiﬁcation Numbers (EIN), the Business Formation Statistics (BFS), to describe the path of business formation in the Great Recession and the COVID-19 Recession. There are three advantages of the BFS. First, it can shed light on the path of current and future business formation because new employer businesses must obtain an EIN in order to ﬁle payroll taxes. Second, it is currently published on a weekly basis, enabling a high frequency and timely analysis. Finally, Kimberly Bayard, Emin Dinlersoz, Timothy Dunne, J

FAQs

How do business applications change during the Great Recession versus the COVID-19 Recession?

During the Great Recession, both applications and transitions to employer businesses decline slowly but persistently after the Lehman crisis. During the COVID-19 Recession, applications initially drop but then rebound sharply, creating a surge in 2020.

What happens to projected transitions to employer businesses in the COVID-19 Recession?

Projected transitions to employer businesses increase, but the increase is dampened because the 2020 composition of applications shifts toward those more likely to be non-employers.

What data source is used to study business formation in this paper?

The paper uses a Census Bureau data series on applications for Employer Identification Numbers (EIN), called the Business Formation Statistics (BFS), combined with employer-business records from the Longitudinal Business Database (LBD).

Sep 19, 2026

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