Paper #1852

Title:

Income inequality and entrepreneurship: Lessons from the 2020 COVID-19 recession

Authors:

Christoph Albert, Andrea Caggese, Beatriz González and Victor Martin-Sanchez

Date:

October 2022

Abstract:

We study entry into entrepreneurship during the COVID-19 recession of 2020 using new data from an extensive survey of more than 24,000 Spanish households, conducted between June and November 2020. We find that while the overall decline in the startup rate in 2020 was large, and of a similar magnitude as that during the Great Recession, the differential impact depending on ex ante income was starkly different. During 2020, the drop in firm entry was entirely concentrated among low -and medium- income households. We show that the entrepreneurship gap between these households and their high-income counterparts is not directly explained by social distancing, since it is mostly driven by the sectors not directly affected by lockdown measures, and it is larger among households that did not suffer a negative income shock during the pandemic. We instead find evidence indicating that high-income households performed relatively better during the COVID-19 recession because they had the means to exploit new business opportunities, thanks to their larger wealth and better access to external finance.

Keywords:

Recessions, financial crisis, entrepreneurship, firm dynamics, coronavirus, COVID-19

JEL codes:

E20, E32, D22, J23, M13

Area of Research:

Finance and Accounting

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