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In: Economics

what is the Impact of coronavirus pandemic on the major business of the economy and small...

what is the Impact of coronavirus pandemic on the major business of the economy and small business of the economy ? ( 300 word at least )

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Expert Solution

Hospitality and travel are two of the biggest industries impacted by COVID-19 thanks to travel cancellations, restaurant and bar closures, and low consumer confidence. Manufacturing and construction have largely held off on layoff decisions, but these industries could suffer the strain as consumer demand drops.

Small businesses employ almost 50% of American workers. Yet, the results underscore the financial fragility of many small businesses, and how deeply affected they are by the current crisis. In the sample, which is skewed toward the retail sector, we found that 43% of businesses were temporarily closed and that employment had fallen by 40%. This represents a shock to America’s small firms that has little parallel since the Great Depression of the 1930s. The results suggest that many of these firms had little cash on hand toward the beginning of the pandemic, which means that they will either have to dramatically cut expenses, take on additional debt, or declare bankruptcy. This highlights the ways in which the immediacy of new funding might impact medium term outcomes.

Small businesses’ responses to the survey suggest that many are likely to fail absent financial assistance. As of the last week of March 2020, 38% of businesses viewed it as unlikely or only somewhat likely that they would be open as of the end of 2020. While optimism increased when they were informed about the CARES loan program, it is unclear whether the CARES act will enable most of America’s small businesses to survive—or whether beliefs about its impact are overly optimistic.

The results also highlight the importance of well-designed and sustained economic and public health policy measures. Three policy-relevant results of the survey stand out. Firms in particularly exposed industries—such as restaurants, tourism, and personal services—project that they will find it extremely difficult to stay in business if the crisis lasts for longer than 6 months. These findings suggest large economic benefits from any policies that can safely shorten the economic shutdown (e.g., through stronger short-term containment policies). Second, if we extrapolate the 72% of businesses who indicate they would take up the CARES PPP loans to all US small businesses, the total volume of loans would be approximately $410 billion. (This assumes that all businesses take out the maximum loan size ) When we allow for different take-up rates by employer size and multiply by the 2017 Census payroll amounts in each firm size category, we estimate total loan demand of $436 billion, in excess of the $349 billion allocated in the first tranche of the CARES act. Total demand for such aid may ultimately be even higher under an extended crisis.

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