The Post-COVID Employment Paradox: Nearly Half of States Are Creating Businesses But Losing Small Business Jobs
We crunched the numbers and ranked the states based on post-COVID small business growth to see which ones offer the best opportunities.
The COVID-19 pandemic fundamentally reshaped America’s small business landscape. As the dust settles, our comprehensive analysis of small business growth in the U.S. reveals a striking paradox: while many states are successfully fostering new business creation, they’re simultaneously losing small business jobs at an alarming rate.
To understand how America’s small business sector has evolved in the post-pandemic era, we analyzed four years of data (2022-2025) from the Small Business Administration‘s state profiles, examining total small business counts, small business employee numbers, and small business openings and closures across all states and DC.
The Employment Paradox: More Businesses, Fewer Jobs
The most concerning finding from our analysis is that 24 states, nearly half, experienced negative small business employee growth between 2022 and 2025, even as many of these same states saw increases in their total number of small businesses.
Hawaii leads this concerning trend with a 7.7% decline in small business employment, followed by New York and West Virginia, each losing 4.9% of their small business workforce. Some of the other noteworthy states with small business employment declines include: Illinois (-2.2%), Connecticut (-2.1%), Pennsylvania (-1.5%), Michigan (-1.5%), and Massachusetts (-1.3%).
This paradox suggests that companies may be starting up more frequently, but they’re operating leaner.
Consider Illinois, which ranks 42nd overall despite achieving 8.7% growth in total small businesses. The state added thousands of new enterprises but lost 2.2% of its small business jobs.
Western States Lead the Recovery
Based on our study, Western states have emerged as clear winners in post-COVID small business growth. Five Western states claim spots in the top 10: Utah (#1), Idaho (#3), Nevada (#4), Arizona (#7), and Montana (#10).
Utah takes the top position, driven by solid 14.4% business growth and robust 10.3% employee growth, one of the few states where both metrics point strongly upward.
Idaho achieved the highest small business employee growth in the nation at 11.2%, while maintaining a healthy 12.9% growth in total businesses. Meanwhile, Nevada posted the highest net business creation rate at 6.7%.
Population Size Doesn’t Predict Success
One of the most striking patterns in the rankings is how states with smaller populations are dramatically outperforming larger states in fostering small business growth that creates actual employment.
Meanwhile, states with populations exceeding 10 million are struggling. California, despite its reputation as an innovation hub, ranks just 32nd with a modest 2.2% employee growth. New York sits at 50th place with a 4.9% decline in small business employment. Pennsylvania (41st) and Illinois (42nd) round out the disappointing performance of major population centers.
The standout exception is Florida, which ranks 5th with 17.2% business growth and 6.2% employee growth.
State Rankings: Small Business Growth Post-COVID Pandemic
- Utah
- Delaware
- Idaho
- Nevada
- Florida
- Georgia
- South Carolina
- Arizona
- North Carolina
- Tennessee
- Montana
- Wyoming
- South Dakota
- Texas
- District of Columbia
- Washington
- Arkansa
- New Jersey
- Virginia
- Alabama
- Colorado
- New Hampshire
- Rhode Island
- Maine
- Vermont
- Indiana
- Kentucky
- Missouri
- Nebraska
- Wisconsin
- Mississippi
- Kansas
- Maryland
- California
- Oklahoma
- North Dakota
- Connecticut
- Alaska
- Michigan
- Ohio
- Pennsylvania
- Illinois
- West Virginia
- Massachusetts
- Iowa
- Minnesota
- Oregon
- Louisiana
- New Mexico
- New York
- Hawaii
Methodology
This study examines small business growth across all U.S. states from 2022 to 2025. All data used in the rankings were sourced from the Small Business Administration (SBA) state profiles for each year (access them here: 2022, 2023, 2024, and 2025). The SBA compiles its reports using publicly available data from the U.S. Census Bureau (including the Nonemployer Statistics and Statistics of U.S. Businesses) and the Bureau of Labor Statistics.
For each state and each year, we collected the following data:
- Total number of small businesses
- Number of small businesses opened
- Number of small businesses closed
- Number of small business employees
For the purposes of this study, small businesses are generally defined as those with fewer than 500 employees.
Calculating Growth Metrics
To capture changes in small business activity, we calculated the following for each state over the four-year period:
- Total Small Businesses Growth (%) – the percentage change in the total number of small businesses from 2022 to 2025.
- Small Business Employees Growth (%) – the percentage change in the number of employees working at small businesses over the same period.
- Net Opened/Closed Businesses Growth (%) – the total number of businesses opened minus those closed from 2022 to 2025, expressed as a percentage of the total number of small businesses in 2022.
Normalization
Because these metrics are on different scales, we applied min-max normalization to convert all three into a 0–1 scale. This ensures that each metric contributes proportionally to the final ranking without being skewed by larger absolute values.
Weighted Scoring and Ranking
To create an overall ranking of fastest-growing small business states, we applied a weighted score:
- Small Business Employees Growth – 50%
- Total Small Businesses Growth – 25%
- Net Opened/Closed Businesses Growth – 25%
We chose these weights to reflect both the overall size and economic impact of small businesses (employees) and the dynamics of business creation and closure. The weighted scores were then ranked in descending order, with the highest score representing the state with the fastest-growing small business sector.
This methodology provides a clear, data-driven view of small business growth trends post-pandemic, highlighting states where small business activity has increased most significantly between 2022 and 2025.
