Posted on May 29, 2021

Small Businesses Have Surged in Black Communities. Was It the Stimulus?

Quoctrung Bui, New York Times, May 24, 2021

Over the last year, multiple stimulus measures from the federal government have helped families buy groceries, pay rent and build a financial cushion. This aid might have also helped start a new era of entrepreneurship.

There has been a surge in start-ups in America that experts have yet to fully explain. But a new study — using data that allows researchers to more precisely track new businesses across time and place — finds that the surge coincides with federal stimulus, and is strongest in Black communities.

Across a number of states, the pace of weekly business registrations more than doubled in the months after the CARES Act was signed in March 2020. Business registrations rose again, by 60 percent, around the period of the supplementary aid package signed in December. Coinciding with the third wave of stimulus in March, weekly business registrations have been up by 20 percent, but the data is less complete.


Although there might be other factors at work, the researchers say the stimulus checks and increased unemployment benefits shored up confidence in the economy enough that millions felt comfortable in starting a business despite being uncertain about when the pandemic would end.

“Start-ups have always fallen in recessions,” said John Haltiwanger, an economist at the University of Maryland who studies business formation. “This is the only one I know where start-ups grew.”


When the researchers mapped the data, they found that the ZIP codes that experienced the greatest increase in business registrations were in Black areas, particularly higher median-income Black neighborhoods. Even after controlling for other variables, the proportion of Black residents in a ZIP code had the strongest impact on the start-up growth rate.

While the data doesn’t directly tell us the race of the entrepreneur, it does provide an address listed with the registration. Though that address isn’t necessarily the address of the establishment, for small businesses it tends to be.

To Andre Perry, a fellow at the Brookings Institution, this flurry of small-business activity in Black communities may actually be a sign of struggle: “This is more about survival than it is about wealth creation. There’s lots of people who have lost their jobs and lost their businesses. People are starting to realize that side hustles are businesses.”

You can see some evidence of this in the data. Robert Fairlie, an economist at the University of California, Santa Cruz, tracks what he defines as necessity businesses and opportunity businesses. Necessity businesses are those whose owners were previously unemployed.

The share of businesses born out of necessity more than doubled, he said, to 30 percent in 2020 from 13 percent in 2019.

Last summer, Pilar Donnelly started making playhouses in Houston for her two 6-year-old boys. She had been laid off from her job in sports marketing and wanted to give them something for their birthday. With no background in woodworking, she started off with a design she liked online and watched YouTube to learn woodworking techniques. After making a number of playhouses for her friends and family, she realized it could be a business. That business, which she registered in June, is called Wish You Wood Custom Creations.

She said it was her personal savings and the unemployment benefits that really helped give her peace of mind last summer; the stimulus check wasn’t enough by itself to make a huge difference in her decision to start a business.

“I did buy a saw with some of that money,” she said. “That did help a little bit.”

Ms. Fazio says it’s telling that entrepreneurship is on the rise in Black communities at precisely a moment when economic support is at its most universal.

“It feels significant that we saw this big response in neighborhoods where it doesn’t typically happen,” she said. “When you remove those gateways that have worked in some ways to limit access for certain communities, then you really do unleash potential.”