State responses during the COVID-19 pandemic and their impacts on small businesses

The unexpected outburst of the COVID-19 pandemic in the USA in March 2020 hit small businesses across the country, triggering mass job losses and closures. Beyond the severity of the pandemic itself, policy responses adopted by state governments produced yet another set of changes in small business operating environments. Using data from the Small Business Pulse Survey and the Current Population Survey, this paper provides evidence of how small businesses experienced these policy changes during the first few months of the pandemic in terms of perceptions of the pandemic, adjustments in employment levels, and employee schedule, as well as changes in overall self-employment activity. Policy variables include the Paycheck Protection Program (PPP) and a State Orders database. We find that the PPP per firm on the state level has a strong positive impact on lessening firms’ negative perceptions, alleviating the need to downsize, and recovering self-employment activities. The lifting of shelter-in-place, non-essential business closures, and restaurant dine-in services restrictions all helped, though their impact was more modest than PPP’s. The magnitudes of both effects vary by industry and owner groups.