Study shows pandemic’s impact on hours worked in U.S. small businesses

A new study by Yale economists details the drastic effects of the COVID-19 pandemic on U.S. small businesses and the hourly workers they employ.

The report, which covers the period from late January through June 6, shows that average hours worked in small businesses plummeted by 60% in March, when pandemic-related economic lockdowns were taking effect. Hours started to rebound in April, but as of June 6, remained 35.9% below pre-pandemic levels. 

The researchers analyzed data on hours worked and employment patterns in small businesses; the data came from Homebase, a company that provides scheduling and timesheet software to more than 80,000 firms throughout North America. The analysis tracks firms that were operating during the last two weeks of January. Yale’s Tobin Center for Economic Policy is supporting the research. 

The decline in hours worked was sharpest in New Jersey, New York, and Connecticut — national COVID-19 hotspots in the pandemic’s early stages. For example, hours worked in New York remained 59% below the analysis’ baseline period of January 19 to Feb.1, according to the study.

“The COVID-19 pandemic created an unprecedented disruption to the country’s labor market, and real-time data is vital to understanding ongoing changes to labor market conditions and informing policy measures aimed at addressing the crisis,” said Joseph Altonji, the Thomas DeWitt Cuyler Professor of Economics in the Faculty of Arts and Sciences, and a co-author of the report. “Our analysis found drastic reductions in hours worked by employees of small businesses. It also showed that the pandemic has most affected the lowest-paid hourly workers. This kind of insight can improve targeting of policy interventions.” 

The report, which will be updated periodically, found that the lowest-paid workers, those making an average of $9.38 per hour, experienced the sharpest decline in hours worked. Their hours had plunged more than 70% by early April before rebounding to about 55% in June, the data show. 

Business closures and layoffs accounted for most of the reductions in hours worked, and the analysis identified cuts to employees’ work schedules as the secondary cause of the drop. Smaller firms — those with fewer than five employees — were more likely to close due to the pandemic than larger firms, according to the study.

“This research offers unique insights into the economic effect of the pandemic on some of the business sectors and working population that have most acutely felt its impact,” said David Wilkinson, executive director of the Tobin Center. “The Homebase data brings distinct value enabling rich, real time understanding to the current economic crisis. We are grateful for their partnership with Yale, and their willingness to work with researchers nationwide to inform the country’s understanding and policy response.”  

While hours fell in all industries, the analysis found that the drop was most drastic for hourly employees in leisure and entertainment, beauty and personal care, and bars and restaurants, the researchers stated. The decline was steepest in the beauty and personal care industry, where employees worked 90% fewer hours in April compared to late January and had partially recovered to 60% by June. Hours in bars and restaurants, the industry that accounts for the largest share of the Homebase data, were about 60% of their pre-pandemic levels in early April and had rebounded to 40% by June, the study found. 

The report’s other co-authors are Zara Contractor, Lucas Finamor, and Dana Scott, Ph.D. candidates in the Department of Economics; Ryan Haygood, a rising senior in Yale College and research assistant at the Tobin Center; Ilse Lindenlaub, assistant professor of economics; Costas Meghir, the Douglas A Warner III Professor of Economics; Cormac O’Dea, assistant professor of economics; Liana Wang ’20 B.A., an undergraduate research assistant; and Ebonya Washington, the Samuel C. Park Jr. Professor of Economics. 

Access the full report on the Tobin Center’s website.