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Older Workers Lose Jobs and Businesses as Small Firms Close

While unemployment rates have decreased slightly from their historic high in April, they remain elevated. Economists continue to debate how deep this recession will be as well as the time it will take for the economy to recover.

One crucial unknown is to what extent the devastation to small businesses will be permanent. Their plight affects many older workers because they are more likely to own or work for a small business than are other workers.

Small Businesses Are the U.S. Jobs Engine

Small businesses have traditionally accounted for most U.S. jobs, and they employ many workers ages 50 and older. A Bureau of Labor Statistics (BLS) analysis has found that while workers of all ages are more likely to work for a small business than a larger one, older workers, especially those ages 65 and older, are the most likely to be employed by small firms.

Older workers are also more likely to be small business owners and entrepreneurs, either with employees or through sole proprietorships. While only about 4 percent of those ages 25 to 34 are self-employed, the share of those working for themselves rises to 8.8 percent for workers ages 55 to 64 and an even higher 16.4 percent for workers ages 65 and older.

The Number of Active U.S. Small Businesses Has Declined Sharply

BLS Business Employment Dynamics Survey data for the third quarter of 2019—the most recent available—indicate that prior to the pandemic, the smallest firms were already losing jobs at higher rates than larger firms compared with the previous quarter. As the crisis unfolded, lawmakers began to look for ways to help smaller businesses, and the jobs they support, survive. Congress allocated $669 billion of funding to the Paycheck Protection Program (PPP), established as part of the CARES Act, the pandemic-response legislation passed in March. Implemented by the Small Business Administration with support from the Department of the Treasury, PPP aimed to preserve jobs by giving forgivable loans to businesses with fewer than 500 employees.

Despite these efforts, small businesses, and the employees who work for them, continue to be among the hardest hit in this recession. Research from the JP Morgan Chase Institute published in June found that small business cash balances (i.e., the difference between revenue and expenses), plus any other cash inflows to a business, have declined across industries, but with wide variation in the severity of their decreases. Not surprisingly, restaurants and personal-service firms experienced the most severe declines in cash balances. According to a preliminary research paper by the National Bureau of Economic Research, the number of active U.S. small business owners dropped by 3.3 million between February and April, a 22 percent decline. What is not yet clear is how many of these business closures will be permanent.

Continuing Challenges Are Likely for Small Businesses

Small businesses will continue to struggle as high levels of unemployment and pandemic-related restrictions in many areas across the country will result in depressed levels of consumer spending. Over time, more small businesses will likely close their doors permanently. Economists are concerned that business die-offs concentrated among small businesses will ripple across the economy, depressing wage growth and, in turn, damaging community resiliency along with the overall health of the labor market.

For many older workers, the decline of the American small business could translate into a further decline in job opportunities.

For more jobs data:
Find the latest employment data in the AARP Public Policy Institute's (PPI) Employment Data Digest, PPI's monthly review of job trends for those ages 55 and over. Visit the AARP website's work and jobs section for articles on work and unemployment and job search resources.

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