Episode 4: Did a pandemic revive the U.S. entrepreneurial spirit?
Runtime: 15:10— In the season’s final episode, we’re looking at two ongoing pandemic-era trends. One is the unexpected surge in startups. The other is the increasing influence of automation. What do these trends and others tell us about what’s ahead for labor markets?
Two pandemic-era trends are in focus in the season’s final episode. One is a surge in startups that jolted the nation from an entrepreneurial slump it had been in since the Great Recession. What caused it? And will it last?
The other is the increasing influence of automation. After labor markets got tight, expanding automation was seen as a way to potentially fill demand for labor. But will increased automation ultimately be good for workers?
These and other COVID impacts on labor markets won’t be easy to analyze. But as economists sort it out, some say one clear lesson from the pandemic is that the economy is incredibly resilient.
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Sherri Mitchell was a just a few months away from completing a demanding mid-career switch when COVID-19 nearly wrecked everything.
Her journey had started when she left a long career in the health and wellness field in Northern Virginia and headed west, to Colorado, to attend culinary school.
Graduation was only few months away. And after that, the-then 47-year-old had planned to ease her way into a new business selling premium cooking sauces. She’d work for a corporation for a bit, save some money, and gradually get her sauce business up and running.
And so that's what I was starting to prepare to do right around February or March. And then the world started caving in.
Mitchell’s culinary school shut down, along with everything else. And she found herself with no job and no real options. Except to just go ahead and start her business in the middle of a global health emergency.
It actually never occurred to me not to do it because at that point there really were no other options. Everything was shutting down, everything was closing. We're going to remember this time in our lives forever. And the hopelessness that so many people felt because everything that we knew as our reality was suddenly taken away from us, and we had to figure out how to keep going. And, in my case, there was no question in my mind of this is what I was going to do because the option of working for somebody else had now been taken away. So, I had to work for myself.
Today, she runs Chef Sherri Sauces. Her six sauces – from Herbed Cranberry Fig to Bourbon BBQ – are available online, or in places like Denver International Airport. And Mitchell is an example of someone who helped drive one of the most surprising labor market trends of the pandemic – the surge in entrepreneurship.
It’s not what economists expected. Here’s the University of Maryland’s John Haltiwanger.
It kind of caught us by surprise, partly because of the last recession. In the Great Recession, we saw business formation collapse.
As we’ve seen this season, it wasn’t the only surprise the labor markets offered up during the pandemic.
My name is Jay Lindsay, and this is Six Hundred Atlantic, a podcast produced by the Federal Reserve Bank of Boston. In Season 4, we’re following up on the Bank’s 66th Economic Conference, which examined “Labor Markets During and After the Pandemic.”
In prior episodes, we’ve looked at the labor market’s remarkable recovery since April 2020, when the economy lost 20 million jobs in a month. We’ve examined trends that weren’t what they appeared – like the so-called Great Resignation. And we’ve looked at trends that are still having an impact – like the rise of remote work.
In this episode, the last of the season, we’ll keep looking toward the future. We’ll discuss this revival in entrepreneurship. And we’ll cover the importance of technology, specifically automation. Experts say there’s no doubt automation has a large and increasing role to play in our economy. But it’s unclear whether it will be good for workers.
Boston Fed economist Chris Foote helped organize the economic conference. He says as researchers assess what happened during the pandemic, it’s clear it’s re-taught us something about labor markets.
I think another lesson of the pandemic illustrates something that has happened at a number of periods in American history, is that when you have a huge event that happens, most often a war, where there are all sorts of changes happening in society in general, that those will have effects on the labor market.
So, it's an exciting time to be thinking about the labor market, even though we're not quite sure, as of now, how the labor market is going to look in response to all these pandemic engendered changes.
The Great Recession of 2007 and 2008 didn’t just spark a collapse in entrepreneurship. It seemed like it may have permanently damaged the country’s startup culture. Here’s Haltiwanger:
In many ways, we never really recovered from the Great Recession in terms of startup activity, and particularly for new employer businesses. And we've been struggling to figure out exactly what happened to the U.S. economy? It sort of lost its mojo in terms of entrepreneurship.
That’s why it was odd when a pandemic and an apparent jobs calamity seemed to be bringing it back. But Haltiwanger couldn’t argue with the numbers. He says the entrepreneurial surge is seen in applications for new employee identification numbers. Anyone who wants to open a business that employs others must get one of these numbers. And many businesses owners that intend to have just have a single employee – themselves – also apply for one.
Haltiwanger says 2021 and 2022 are the highest years on record for these applications – by far – since the mid-2000s. Applications in both years were about 30 percent higher than in 2019, just before the pandemic.
Two years in a row where we're 30 percent higher than pre-pandemic, makes us think, "Okay, something different is going on.” Why do we care? Well, again, historically, new employer businesses have played a disproportionate role in job creation and in innovation and in productivity growth.
This group of new businesses included what Haltiwanger calls “necessity entrepreneurs.” These are people who start a business because they don’t see another option. But he says the group also includes people who saw market opportunities during the pandemic.
Haltiwanger notes that many of the startups seemed to be responding to the needs created by the pandemic. For instance, e-commerce was a popular category for the new businesses. So were truck transportation and “professional scientific technical services” – which might include things like setting up computer systems. All are well-suited to serve consumers who are staying home, shopping from home, working from home.
All these industries, in many ways, are what we might call pandemic friendly industries.
At a glance, Chef Sherri Sauces also fits that description. She started when restaurants were largely shut down, and people were looking for new cooking-at-home options. But Mitchell notes her timely concept didn’t come with a customer base or marketing plan. For her, getting started was a battle that the pandemic’s unique circumstances made harder, not easier.
Oh, the obstacles were so numerous it's really hard to know where to start with all of it.
For example, she had to travel the state looking for the right jars because there was a shortage – everyone was canning during the pandemic. And she had to finish her own logo, after her designer bowed out due to pandemic stress.
Mitchell’s early operations amount to herself in her kitchen, making batch after batch of sauces, one three-quart container at a time. But Mitchell also remembers her first taste of success, when people raved about her sauces at a farmer’s market.
And I thought to myself, “I can breathe. People get it. This is great. This is going to be okay.”
She admits, though, that she’s not always convinced of that.
Honestly, it's something that I battle in my mind probably every week. Being a small business owner is not for the faint of heart. It is incredibly stressful. At the same time, that fire in me to continue driving is still there, and it continues having me push down the road.
The entrepreneurs shaking up the economy are creating disruption with more than just their heads – their ideas. Their feet are also causing issues.
Often, people chasing new opportunity are moving into other sectors to find it. It’s part of the “great reshuffling” that researchers discussed in Episode 2. And the sectors that lose workers in a tight labor market have incentive to turn to technology – including automation – to replace those workers.
Automation broadly describes technology that performs tasks that normally require human beings. It ranges from robots that work automobile assembly lines to software that performs repetitive filing tasks. MIT’s Daron Acemoglu, who gave the keynote address at the Boston Fed conference, notes the push for automation long precedes the pandemic. But it was ratcheted up during COVID by things like social distancing rules and more frequent employee absences. This created a desire for more reliable machines and fewer absent workers.
Acemoglu says automation has a significant role to play in post-pandemic labor markets. But no one knows yet if it will be a hero or a villain.
Economists have traditionally applauded automation because new machines and new technologies often make workers more productive. Higher labor productivity, in turn, leads to higher wages and better living standards. But Acemoglu points out that there is such a thing as too much automation. That occurs when machines replace workers outright without boosting overall productivity very much.
There is good automation, which is high productivity automation, not the so-so, not so excessive part, and it is crucially associated with new tasks. The so-so automation, or the excessive automation, is the bad face of automation. And if that bad face of automation is what we see, I think it’s really bad for productivity, not that great for productivity, anyway. It's bad for distribution, it's bad for labor.
So, I think if the future is one of ceaseless algorithmic automation and nothing else, and if the pandemic is giving an additional boost to that, then the long-term implications of the pandemic could be actually quite a bit worse than what we are thinking right now.
Steve Clark is head of the Massachusetts Restaurant Association. He says the pressure to explore automation in his industry always gets more intense when workers are scarce – as they were during the pandemic.
Automation has always been the – bad pun – the robot knocking at the door. There's always new technologies that are coming out, and I think people are looking at it, whether it's the robot that can deliver food to the table or the hamburger-flipping arm.
But Clark predicts automation will ultimately help workers in his industry, not displace them.
It's going to be complementary. There are certain parts of a restaurant that can't be done by a robot. You know, whatever it is, the cooking of a medium steak, you probably need a chef's eye on that, not just a robot. So, I think it's probably going to be hand in hand where both automation and human service are a dual component to it.
Restaurants and bars were among the slowest to return to pre-pandemic levels of employment. But numbers from the U.S. Bureau of Labor Statistics indicate they pretty much have. Collapse has been followed by recovery just about everywhere, and COVID doesn’t appear to have any surprises left for labor markets. Here’s University of Rochester economist Lisa Kahn.
My opinion, and I don't have a crystal ball any more than anyone else, but my opinion is if we were going to see these dramatic changes driven by COVID, we would've seen them. We went from spring 2020, where the economy halted in economic activity, and we saw the largest decline in employment that we've seen in measured history in the United States, and we saw all of these other changes in every possible way for our lives. And we've come out the other side looking, as I've mentioned before, surprisingly similar to how we did before COVID. So, if that initial shock is not enough to push us to some kind of a new normal, then I don't know what it would be. And it would have to be something that's really not that directly related to COVID.
Haltiwanger says that – as awful as it was – the COVID shock is leaving behind real labor market benefits, such as the increase in remote work.
There's been huge negatives, right? There's obviously literally loss of life, there's people with long COVID, lots of adverse effects. But this was a shock that woke us up to, “Wait a second, we can do things differently,” and in many ways take advantage of the IT revolution in ways we hadn't yet.
It turned out COVID’s impacts on labor markets weren’t easy to predict. And they also won’t be easy to analyze. Foote says the labor market’s ability to return from such a brutal blow has implications researchers will be studying for years.
It's interesting to ask the question, ‘”Do we know now about the American economy that perhaps we didn't know before the pandemic?” And I think resiliency is, indeed, one of the biggest lessons that we should take from the pandemic. The ability of firms in general, or organizations in general, to adapt when they had to was pretty inspiring.
Thank you for listening to Season 4 of Six Hundred Atlantic. You can find interviews and our first four seasons and subscribe to our mailing list at bostonfed.org/six-hundred-atlantic. And we'd really appreciate if you would rate, review, share, and subscribe to Six Hundred Atlantic on your favorite podcast app.
The producers would like to thank our contributors for their time and insights. They are Steve Clark, Chris Foote, John Haltiwanger, Lisa Kahn, and Sherri Mitchell.
Six Hundred Atlantic is a Federal Reserve Bank of Boston podcast hosted by Jay Lindsay, Allison Ross, and Amanda Blanco. It’s produced by Jay Lindsay and Peter Davis. Executive producers are Lucy Warsh and Heidi Furse. Recording by Steve Osemwenkhae and Peter Davis. Engineering by Steve Osemwenkhae, Michael Konstansky, Allison Ross, and Meghan Smith. Project managers are Peter Davis and Dulce Depina. Chief consultant is Chris Foote. This podcast was written by Jay Lindsay and edited by Chris Foote, Darcy Saas, Nick Brancaleone, and Daniel Cooper. Graphics and website design by Meghan Smith and Stephen Greenstein. Production consultants are Mike Woeste and Nick Brancaleone.
This has been “From Collapse to Recovery,” the fourth season of the Boston Fed’s Six Hundred Atlantic podcast.