2021 Entrepreneurial Activity Review

The initial severity of COVID-19 in the United States caused many economists to set expectations by comparing that moment to the Great Recession of 2008–2009. During that economic downturn, the US TEA rate decreased precipitously and took some time to recover. Yet the experience of COVID-19 has turned out to be much different. While the country’s TEA declined mildly in 2020, it recovered quickly in 2021, to the nearly pre-pandemic level of 16.5%. The rate of new business registrations, as calculated by the US Census Bureau, also increased dramatically during this time, beyond pre-pandemic levels. While business registrations are not a perfect measure of entrepreneurship, this is further evidence that the United States is experiencing a strong entrepreneurial response.

While some of the United States’ entrepreneurs may have chosen this route due to economic necessity, many have done so because of opportunity. This is made clear by first looking at 2020 data, when few of the US respondents intending to start a business soon said it was due to the pandemic (36%), one of the lower rates among peer economies at the time. Now in 2021, many entrepreneurs are seeing COVID-19 as an opportunity: 52.6% of TEA respondents see new opportunities as a result of the pandemic.

Additionally, 60.8% of these respondents plan to use more digital technologies to grow their business in the next six months, indicating a willingness to adjust strategy and invest in the new consumer demands generated by the pandemic. A strong characteristic of COVID-19 era entrepreneurship is that it appears to be accelerating the rate of single-employee companies, known as “solopreneurship”: a trend that started a few years earlier. These tend to be solo consultants, professional service specialists or contract workers.

In 2021, the rate of US adults expecting to remain as the only employee in their business was up by nearly 20% from 2020. Like entrepreneurship more generally, some of these solopreneurs start their business out of economic necessity, but many do so out of opportunity. This could mean business opportunity, or the opportunity for more flexible work arrangements, which became more essential during COVID-19. Federal and state policymakers should consider these factors in crafting policies. While many are looking to push employers to classify contractors as benefit employees, policymakers could instead assist these solopreneurs by providing decent options for health care, savings and other benefits. More Americans are revealing their preference for flexible work, but current policies disincentivize these potential entrepreneurs.

2021 Framework Conditions Review

The United States improved on many framework conditions in 2021. Unfortunately, many of the country’s scores remain below average within its peer group of GEM Level A economies. Yet there were also positives. Both of its financing-related conditions received sufficient scores for enabling entrepreneurial activity, meaning entrepreneurs can generally access finance options, though there is room for improvement, particularly for those entrepreneurs outside certain fields like technology or digital media.

The condition Commercial and Professional Infrastructure was also a stand-out for the United States. In 2021 this condition received a 6.4 score, up from 6.0 in 2020 and placing it sixth among GEM Level A economies. This reflects the strong legal and financial services sector in the United States, which is generally accessible to entrepreneurs, though rarely would it be considered affordable. The country’s governance-related conditions, however, received low scores compared to peer economies, even if scores improved from 2020. This indicates further need for targeted entrepreneurial programs from the federal government that are accessible and offer worthwhile compensation.