Research

Are 39 percent of small businesses really permanently closed after Covid?

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By Robert Romano

“Sadly, during the course of the pandemic, one-third of our small businesses have closed.”

That was Vice President Kamala Harris in a June 1 interview on MSNBC, citing a study by Womply, a Paycheck Protection Program (PPP) and Small Business Administration loan servicer, and Harvard University’s Tracktherecovery.org website, which currently claims as of June 15 that “the number of small businesses open decreased by 38.9 percent compared to January 2020…” before the Covid pandemic.

That’s the highest reading by Womply since April 2020, when it stated 44 percent of small businesses were closed.

But is that really true?

And what do they mean by “closed”? Are the doors simply closed and customers have to wait outside for their order? Are they permanently closed and have filed for bankruptcy? Are they temporarily closed while they wait out the pandemic? It’s hard to say because neither Womply nor Harvard University say.

And how does Womply characterize small businesses? According to Womply’s report, “We analyzed credit card transaction data at businesses who were regularly transacting between January 1, 2020, and March 1, 2020… A business was designated as ‘closed’ if it didn’t process a single transaction for three straight days starting on March 1… If, after that three day period, the business processed a transaction, they are no longer considered closed and we back-update previous dates to represent that business as being “open”… An important note: Restaurants and other businesses who have shifted to processing 100% of their transactions via third party delivery apps (like Doordash, Grubhub, etc.) would also show as being ‘closed’ by this metric…”

As of April 2020, Womply boasted having 450,000 clients as it was promoting its PPP services, an impressive number, however it is but a small fraction of the number of small businesses nationwide.

Is Womply simply talking about its own clients, and inferring that nationally the same thing must be true? And then somehow managed to get the White House to repeat the non-government-produced statistic?

According to the Bureau of Labor Statistics’ (BLS) Quarterly Census of Employment and Wages, in Feb. 2020 right before the Covid pandemic, 10 million establishments with 250 or fewer employees had a total of 91.8 million employees.

At the height of the Covid lockdowns in April 2020, as many as 21.3 million private sector jobs were lost in the BLS establishment survey. Since that time, 14.7 million jobs have been recovered in that survey, leaving about 7.6 million fewer jobs from Feb. 2020

So, if the Womply study were representative of the entire nation, and 38.9 percent of small businesses were closed right now, that would mean some 3.9 million small business had ceased to exist during Covid, implying as many as 35 million jobs had been lost to the Covid lockdowns.

While the situation for small businesses during the pandemic has certainly been dire — that’s the whole reason the Trump administration and Congress put together the PPP loans — except, at no point since 2020 has BLS measured fewer than 10 million establishments in the U.S.

Meaning, the estimate that close to 40 percent of small businesses have been closed due to Covid is almost certainly not true. Or if they have, the closures are only temporary.

The Bureau of Labor Statistics has far more resources than Womply to get an accurate picture of employers nationwide. They have a much larger dataset. Meaning, policy makers looking to make decisions about the situation facing small businesses and incentivize private sector job creation should take Vice President Harris, Harvard University and Womply’s figure with a giant grain of salt.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government.