Small Business and the COVID-19 Pandemic: The Role of Work from Home

Abstract

While work from home (WFH) becomes the new norm in the COVID-19 pandemic and while small businesses could be more vulnerable in crisis, whether the WFH norm will fade after the stay-at-home mandate ended and whether WFH could be a Schumpeterian “creative” force that helps small businesses do well in the pandemic is unknown. The study first builds a theoretical framework based on marginal revenue product cost utility theory subject to a “contagion” agglomeration parameter and argues that WFH is a rational choice for businesses. Then, we compiled from multiple data sources an up-to-date real-time daily and weekly multifaceted data set tracking WFH propensity from March 20 through July 28. Our empirical analysis estimated a variety of fixed-effects panel data models, population-averaged generalized linear panel-data models with the generalized estimating equation (GEE) approach, and two-level mixed-effects panel-data models. After controlling for the local pandemic, economic, and demographic factors, we find (1) after the stay-at-home order ended, WFH rate got higher; (2) small businesses in states with higher WFH rate are more likely to have higher increases in operating revenue, better cash flow and lower chances of temporary closure. Our robust empirics confirm our theories and hypotheses and demonstrate WFH as a potential force that expedited the “creative destruction” into a new efficient work paradigm.