A tale of two startups: the loss and gain of startups in the U.S. economy in the pandemic

Abstract The COVID-19 pandemic delivered an unprecedented shock to business entry, with sharply contrasting effects on different types of startups. Using newly constructed administrative data from the Comprehensive Startup Panel covering the universe of U.S. startups, we provide the first official numbers of the pandemic’s impact on employer and nonemployer startup dynamics. Nonemployer startup formation declined substantially in 2020, while the number of employer startups unexpectedly increased. In 2021, nonemployer formation rebounded, almost offsetting the 2020 decline. Survival outcomes also diverged: nonemployer startup survival dropped markedly during the pandemic, whereas employer startup survival remained largely stable. Within nonemployer startups, the contraction was broad-based, affecting nonemployers with and without an Employer Identification Number, an indicator of growth orientation. These findings reveal a pronounced compositional shift between employer and nonemployer startups and underscore the importance of designing policies tailored to nonemployer startups in economic crises.