US Business Registration Up 82 Percent But it May Mostly be Glorified Gig Work

While the number may not be as good as it sounds in terms of reducing unemployment, experts say that some of the largest and most successful companies out there get their start during difficult economic times.

Source : Pixabay

December 30, 2020

Author : Patty Rodriguez

A new report shows that business formation applications in the United States are up 82 percent in the three months leading up to September in comparison to the same months in 2019, reflecting a trend of a skyrocketing number of new businesses in major economies.

The UK, France, Germany and Japan have also seen huge increases in the number of new businesses being registered.

But while that information is a cause for hope, it isn’t clear how much money has actually been invested in these new companies. 

While the 82 percent increase in business registrations in the US may seem sky-high, it certainly doesn’t make up for the damages to the economy caused by the coronavirus pandemic. As we previously reported, some studies even suggest that “160,000 businesses closed between April and September. That’s more than 800 per day.” Meanwhile, even businesses that haven’t closed have been forced to engage in mass lay-offs.

There’s also reason to believe that many of these new start-ups are sole proprietors and aren’t really helping much to lessen unemployment. This opinion is shared by Gregory Daco, chief US economist at Oxford Economics. He asserts that many of these businesses don’t have dependent workers, pointing to “people likely being laid off during the pandemic [and] starting their own company.” He told the Financial Times that it’s likely these new businesses were started out of necessity.

This comports with what Contractor News heard from a new business owner in New Mexico. Her new company, which includes just her and one business partner, was started shortly after she left her day job. The company she had worked for cut her salary in half, causing her to leave, which freed-up time to explore new businesses. In addition to her new retail business, she’s also looking to do essentially the same work as before under yet another sole-proprietorship company.

It’s also possible that many people, finding more time on their hands, are finding creative ways to lessen their tax burden, or are merely setting up these new businesses to supplement their income rather than to embark on a new business venture full-time.

There’s also reason to believe that many of these new businesses are really just glorified gig work. And as Contractor News previously reported, “35 percent of the 57 million working Americans freelanced in 2019,” and “while Americans look for alternative income and side hustles due to the economic fallout of the coronavirus, 2020’s figures are sure to show a substantial increase.”

According to the report, “US official statistics showed online retailing led the surge in business applications, but many sectors, including information, professional services and logistics, contributed to the trend.”

People are shopping less at legacy outlets and more online, and so entrepreneurs are responding by creating online retail outlets. But retailers still need suppliers, and suppliers are still suffering. 

Other economists told the Financial Times that the trends reflect “a change in the type of new companies set up...?this is likely a consequence of a shift in consumption patterns during the pandemic.”

While many of the new companies are likely intended to just add additional revenue streams for their owners, or serve as “side gigs,” the US data shows that the number of businesses who plan to have salaried employees were also up, but only 52 percent.

Still, these business registration numbers are higher than what we saw during the Great Recession, likely a reflection of the completely different nature of the economic downturn. Additionally, interest rates are low and so is the cost of registering a new business.

At the end of the day, today’s generation has sunk huge amounts of money into higher education in the hopes of gaining traditional employment, only to see the economy tank in 2008 due to corruption at the top, and to see it happen again due to the coronavirus. Having dealt with so much turmoil throughout their professional careers, still strapped with debt and struggling to find work in the fields they studied, it’s no surprise that many millennials are looking to be their own bosses at this point.

And as Dante DeAntonio of the rating agency Moody’s said, “Though counterintuitive, some of the largest and most successful businesses were started during recessions.”

Category : Small Business Enterprises Coronavirus Pandemic Entrepreneurialism International