Startups and employment following the COVID-19 pandemic: a calculator

Abstract

Early indicators suggest that startup activity across countries is heavily affected by the COVID-19 pandemic and the associated lockdowns. At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups and (iii) the survival rate of young firms. We apply our calculator to the United States and four European countries: France, Germany, Italy and Spain. We find that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived. Almost half of the long-run losses is caused by fewer high-growth firms, ‘gazelles’, starting up during the pandemic. Our results also suggest that the long-run effects of the pandemic may vary across countries substantially with Germany possibly being shielded due to its low business dynamism.