How lockdown causes a missing generation of start-ups and jobs

VIVES Note by Shyngys Karimov and Jozef Konings

It is no news that the COVID-19 lockdown has a major impact on the economy and will result in massive job losses. However, the size of this loss depends on how the economy will rebounce and on how entrepreneurship is being affected. Shyngys Karimov and Joep Konings developed a job simulator to estimate the impact of the lockdown on employment growth in Belgium.

Using the current assumptions of the National Bank of Belgium (-3.6% GDP) and a reduction in start-ups of 50% in quarter 1 of 2020, the simulation expects a short-term private employment collapse of 23,000 jobs. A decade later, a gap of 8,000 jobs remains. If we compare this scenario with one that has no drop in start-ups, this long-term gap disappears and the lockdown job losses are recovered in 5 years. This indicates that the scarring effect of a lost generation of start-ups is permanent and long-lasting. The simulator results show that post lockdown policy should not forget about entrepreneurship and young firms. A lack of start-ups now, will cause a lack of high growth firms (and jobs) in the future.

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