Economic Restrictions during the COVID-19 Pandemic and Measures of Small Business Health

Abstract

Over the course of the COVID-19 pandemic, state and local governments have instituted a wide array of restrictions on activity, easing or tightening these restrictions as concerns about transmission evolved. The particular choices that governments made could have large impacts on both public health and on economic prosperity. In this note, we provide evidence on the correlation between the level of these restrictions and a key component of the vitality of local economies, namely small businesses. We find that, in states with tighter restrictions, a greater proportion of small businesses generally reported levels of significantly curtailed operations than in states with looser restrictions throughout the pandemic, although this relationship weakens by the summer of 2021. In addition, states with tighter restrictions experienced a larger increase in small business loan default rates. At the same time, it appears that the Paycheck Protection Program helped to mitigate effects of government-imposed restrictions on small business health.