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Public Health is Small Business Health: COVID-19 and the Small Business Recovery in Summer 2021

Luke Pardue Economist, Gusto 

Just as the U.S. economic recovery has been accelerating in recent months, a slowdown in COVID-19 vaccination rates and the emergence of the highly-transmissible “delta variant” present a new public health challenge and threaten continued economic growth. Platform data from Gusto—the payroll, benefits, and HR services platform for 100,000+ small businesses nationwide—shows public health and small business health are deeply connected. 

Public health and the health of our economy go hand-in-hand. Gusto data shows a direct correlation between how states are faring against COVID-19 and the speed of small business employment growth since the beginning of June.

Key Takeaways

  • States where COVID-19 cases have increased the fastest since the beginning of June have experienced the slowest employment growth. The data shows that a 10 percentage point increase in new cases is correlated with a 0.1 percentage point slower rate of headcount growth
    • The states with the slowest small business employment growth rates are Tennessee, Kansas, Mississippi, and Georgia. 
  • States beginning this summer with high vaccination rates are also seeing the strongest employment growth. We see that a one percentage point increase in the share of adults fully vaccinated increases a state’s small business employment growth by 0.1 percentage points.
    • The states with the highest small business employment growth rates are Vermont, Delaware, Montana, and Maine

Public Health is an Economic Imperative

Public health and economic recovery are not at odds; they are deeply linked. Gusto data shows public health is the surest way for the economy to recover. In order to generate a speedy recovery, and to avoid a costly COVID surge at a time when small businesses are just now making up lost employment gains, state, local and federal officials should devote resources to help areas increase public health measures. Most importantly, by raising vaccination levels in order to contain new COVID variants, policymakers can also aid the small business economy and create a stronger, faster economic recovery.

Methodology

In this post, we use platform data from Gusto –  the people platform offering full-service payroll, benefits, compliance, and expert HR services for 100,000+ small businesses nationwide – to examine the connection between public health and small business health.

We also use state-level, weekly hiring trends to relate employment growth in hard-hit service-sector small businesses to two different measures of a state’s health situation: first, the percent change in COVID-19 cases and, second, the share of adults fully vaccinated as of the beginning of the summer.

Small Business Employment Growth and COVID-19 Case Counts

First, as COVID-19 cases have started to rise nationally again, we take a look at a state’s recent experience with COVID is related to employment growth.  Figure 1 shows that in states where COVID-19 cases have grown the fastest since the beginning of June, there has been among the slowest employment growth. A 10 percentage point increase in new COVID cases correlates to a 0.1 percentage point slower rate of headcount growth.

Figure 1: COVID-19 Case Growth and Service-Sector Small Business Employment Growth

To do this, we calculate the cumulative change in headcount at small businesses in the personal services sectors between June 1, 2021 through July 25, 2021. We plot that against the percentage increase in new COVID cases over that same period, by state. Case counts are obtained from the New York Times COVID-19 Tracker. Figure 1 plots the relationship between COVID case growth and employment growth, by state. Case growth is measured as the percentage change in each state’s 7-day rolling average of new cases between the weeks of June 7 and July 19, 2021. Data for this figure and Figure 2 can be found in Table 1 at the end of this report.

Small Business Growth and Vaccination Rates

Second, we look at the relationship between employment growth from June 7, 2021 through July 25, 2021 and vaccination rates — specifically, the share of adults fully vaccinated as of the first week in June. Figure 2 shows a strong positive relationship between a state’s initial vaccination rate and subsequent employment growth. Again estimating a linear relationship, we see that a one percentage point increase in the share of adults fully vaccinated increases a state’s small business employment growth by 0.1 percentage points.

Figure 2: Adult Vaccination Rates and Service-Sector Small Business Employment Growth

Figure 2 plots the share of adults fully vaccinated the week of July 7, 2021 against cumulative employment growth from June 1, 2021 through July 25, 2021 across the same 47 states as Figure 1. We look at the level of vaccinations here, rather than growth, first because states with initially higher vaccination rates would likely show slower growth in vaccinations even though they have high levels of protection from COVID-19, and also because vaccinations take time to reach full efficacy so there is likely to be some lag in how local vaccination rates transmit to economic activity. Vaccination rates are obtained from Oxford University’s Our World in Data COVID-19 Vaccination Tracker, which maintains a state-level time series published by the CDC.

State-by-State Data

Taken together, these data points show states that have seen the highest growth in COVID cases are seeing some of the slowest employment growth. Whereas states beginning this summer with high vaccination rates are seeing the strongest employment growth. The states with the slowest small business employment growth rates are Tennessee, Kansas, Mississippi, and Georgia. The states with the highest small business employment growth rates are Vermont, Delaware, Montana, and Maine.

StateCumulative Change in Headcount (%)Change in New COVID-19 Case Count (%) Share of Adults Fully Vaccinated (%)
Alabama3.1740.629.8
Arkansas1.9452.832.1
Arizona4.5235.137.3
California4.6584.145.5
 Colorado8.0136.547.4
 Connecticut10.3323.956.0
Delaware16.1228.045.2
Florida0.8577.541.0
Georgia-2.9438.633.8
Hawaii3.1327.548.8
Iowa2.9303.545.2
Idaho4.2219.633.7
Illinois6.1459.141.7
Indiana2.1207.136.8
Kansas-1.9640.139. 5
Kentucky0.7470.539.7
Louisiana3.4704.032.2
Massachusetts9.2600.757.0
Maryland6.3340.350.6
Maine12.8236.657.0
Michigan6.1193.743.7
Minnesota8.3250.147.9
Missouri1.0300.235.5
Mississippi-2.3628.427.9
Montana13.5150.040.0
North Carolina5.0370.437.2
North Dakota10.5157.937.3
Nebraska-5.0422.243.7
New Hampshire10.7138.352.5
New Jersey3.3254.051.3
New Mexico9.0194.549.3
Nevada1.1250.438.3
New York9.3350.649.1
Ohio6.8233.641.6
Oklahoma1.1459.834.5
Oregon7.2165.248.2
Pennsylvania4.2246.645.9
Rhode Island1.5301.454.1
South Carolina3.1649.535.3
Tennessee0.3942.932.6
Texas3.4371.737.3
Utah3.7196.433.8
Virginia3.7372.747.3
Vermont17.1421.459.9
Washington5.8192.349.4
Wisconsin7.4308.346.0
Wyoming3.8162.632.6
Sources: Small business employment growth from Gusto platform data. State vaccination rates from NYT COVID    
Tracker, Adults Vaccination rates from Oxford University’s Our World in Data.
Notes: Cumulative change in headcount is calculated between the week of June 7, 2021 and July 19, 2021; Change in new COVID-19 cases are calculated as the percent change in the 7-day rolling average between those weeks; Share of adults fully vaccinated calculated as an average across the week June 7, 2021.

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Updated: September 9, 2021

Luke Pardue
Luke Pardue Luke Pardue is an Economist at Gusto, researching how public policies help small businesses and their workers thrive. He is a PhD Candidate in Economics at the University of Maryland, where he studies the effects of government programs on disadvantaged populations’ housing and labor market outcomes. Luke currently lives in Washington, D.C.
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