New businesses since the beginning of the COVID-19 pandemic

Early in the COVID-19 pandemic, it was shown that there were fewer new firms in 2020 and that these new firms were smaller than previous entrants. It would be problematic if the situation continued into 2021 and 2022 because new firms are seen as important conduits of innovation and economic renewal. This is particularly pertinent in the current context of weak productivity growth. This article finds that despite starting smaller in employment size and being fewer in number, the entrants in 2020 carried less debt, had more liquidity, were more profitable and were more productive in their year of entry than previous entry cohorts. In addition, perhaps as a result of these characteristics, the 2020 entry cohort, who could not qualify for COVID-19 support programs, had higher survival rates in the first two years of their existence compared with previous cohorts in the same point in their lifecycle and were able to catch up in average employment size in their second year after entry. Furthermore, the rate of entry and the average size of entrants in 2021 and 2022 have mostly recovered to their pre-pandemic levels. The characteristics of the 2021 entrants are also closer to those of 2020 entrants than to those of entrants in the pre-pandemic years. This suggests that weak firm entry or weak entrants are likely not the source of the current lack of productivity growth in the Canadian economy. However, more conclusive evidence will be available when more recent microdata become available.