NEW RESEARCH | Government crisis support during the pandemic a fiasco for small businesses – “Too complicated”

The government support for short-time work during the pandemic was meant to save companies from bankruptcy. But the cumbersome application process was rather the nail in the coffin for the very smallest businesses.

During the COVID-19 pandemic, Swedish companies could apply for crisis support for short-time work. This allowed them to reduce employees’ working hours without reducing their wages, with the government covering part of the cost.

– The aim was for companies to be able to retain their employees, as well as bring down the cost for companies so that they could survive the pandemic, says Åsa Grek, Dalarna University.

In her doctoral thesis, she used data from the Swedish Agency for Economic and Regional Growth on which companies received the crisis support – and how much they received – to examine the survival rate among companies. And the results surprised the researchers.

– Micro-entrepreneurs (0-9 employees) who applied for crisis support for short-time work were less likely to survive than those who did not apply for support.

– One explanation for this may be that many of them were already financially strapped before the pandemic broke out, and perhaps saw it as a last resort for survival. But instead, the application process became the nail in the coffin because it was such a complicated process, says Åsa Grek.

Bigger companies the winners

Even among small businesses (10-49 employees), which received support, the survival rate did not increase compared to those that did not.

– For small businesses, the crisis support did not make a difference.

What is clear from the research, however, is that the larger the company, the more likely it is to survive with the help of short-time work support.

– For micro-entrepreneurs who received support, the probability of going bankrupt increased by around 2%, while support for small entrepreneurs reduced their chances of going bankrupt by around 2%. And for medium-sized companies (50-249 employees), the risk of bankruptcy was further reduced to 7%, explains Åsa Grek.

– Medium and large companies have more resources to deal with complex and extensive applications, which small companies do not have in the same way. Therefore, one may think it is an unfair system, that the support is not on equal terms.

Increased productivity with fewer employees

Åsa Grek also studied the number of employees before and after the pandemic in companies that received crisis support. On average, the number of employees in all companies, regardless of size, decreased by almost 1 employee (0.7).

– In a large company, it’s barely noticeable. But in a company with seven employees, the loss of one person can have a huge impact on the business, she says.

– At the same time, we see that the companies that applied for and received support for short-time work had increased productivity afterwards. It is likely that the pandemic helped to streamline work and manufacturing processes.

Simpler system would have saved more

Åsa Grek believes that a simpler system of government crisis aid is needed, to ensure that it has a fair impact and does not only benefit companies with muscle.

– During the pandemic, it was also possible to apply for tax deferrals. But even that effort seems to have only been good for big businesses. “Many small businesses have gone bankrupt now because they have had difficulty paying their taxes afterwards, she says.

Instead, Grek believes that the government should introduce more automated crisis support.

– Companies did not need to apply for reimbursement of sick pay costs during the pandemic. Instead, it was done automatically via the employer declaration and the Swedish Tax Agency. Such a flexible system for short-time work would have been better for all companies, especially for small businesses, says Åsa Grek.

Beyond creating simpler application processes to ensure a level playing field for all businesses, what is your main message to policy makers?

– That it is crucial to build policy interventions on accurate data. Evaluations of short-time work support during the pandemic have used data at an aggregate level. Based on this data, it is difficult to say anything about how the support has worked for different types of businesses.

– With our data, we can see exactly which companies have received the support, when they received it and how much they received. We then matched this with the companies’ annual reports. This is the only way to get a true picture of the impact of the crisis support, says Åsa Grek.

Contact age@du.se

More about the thesis
Åsa Grek will defend her thesis on September 27 at Dalarna University Firm Policies and Critical Data Sources. The thesis examines different cases of firm policies and critical data sources in five articles. In two of them, the research on the state crisis support for companies during the Covid-19 pandemic is presented.

More on support for short-time work
In 2020 and 2021, support was granted to more than 75,000 companies and with around SEK 40 billion. Around 580,000 employees were in short-time work at some point in 2020. This represents almost 18% of all private sector employees. Read the government’s evaluation of the short-time work scheme.

Read also:
High confidence in entrepreneurship in times of crisis
Professor’s tips for small business owners in tough economic times
Professor’s 6 tips: How to prepare your business for a recession
Different ways small businesses have been affected by the pandemic