The Pandemic Didn’t Just Reshape Where Americans Work, But Where They Build
Old Man Tiber, a contractor in Phoenix, Arizona, hadn't thought much about ‘startups’ before. He’d built additions for families, renovated kitchens, and occasionally done light commercial work. But in the last three years, a new kind of client started calling: young entrepreneurs, often remote workers who’d moved from California or New York, needing quick, adaptable office space in their homes. They weren't looking for luxury; they needed functional, fast. He hired another crew member, then another. He wasn't building the next Google, but he was building for the next wave of them.
This anecdotal shift isn’t isolated. A recent paper from the Federal Reserve Bank of St. Louis, “The Geography of the Startup Surge during the Pandemic,” confirms that the pandemic didn’t just accelerate business creation, it fundamentally altered where those businesses were being created. The long-observed trend of startup activity concentrating in large coastal cities was disrupted, with significant gains across the Sun Belt and even in some areas previously considered economic laggards.
The result, and why it happens
The paper’s central finding is a geographically broad-based increase in the firm startup rate. While the overall rate remains below the highs of the 1980s, it rose from 7.9% in 2019 to 8.7% in 2022 and remained at 8.4% in 2023. Crucially, this wasn't driven solely by the usual suspects. Metro areas in Florida, Georgia, Tennessee, Texas, and Arizona saw particularly strong gains. This challenges the prior assumption that entrepreneurship was fundamentally tied to specific, established innovation ecosystems. Previously, since 2010, the firm startup rate had declined more in smaller cities than in large cities. The pandemic temporarily reversed that trend.
The mechanism driving this shift isn’t explicitly identified in the paper, but the timing strongly suggests a connection to the rise of remote work and associated migration patterns. The ability to live and work anywhere fueled a geographic redistribution of talent, and entrepreneurs followed.
This is supported by broader trends in labor markets during the pandemic, as documented in a 2025 FEDS paper on household labor supply responses to fiscal transfers, noting that the decline in employment was larger for low-income households and linked to transfer receipt, a pattern unseen during the Global Financial Crisis. This suggests a decoupling of work and location, enabling entrepreneurship in previously less-attractive areas.
Furthermore, a policy document on the effects of remote work on scientific collaboration highlighted a shift towards increased cross-border partnerships following 2020, signifying reduced geographic constraints.
The impact isn’t limited to sunnier states. While gains were more pronounced in the South, the paper emphasizes that business formation rose across all city sizes. This is particularly noteworthy given the long-term decline in startup rates in smaller cities. The relationship between city size and startup rate, once strongly positive, flattened during the pandemic, indicating a leveling of the playing field. The paper shows that in 2018, a city with a 1-log-point larger population had startup rates 0.7 percentage points higher. This relationship did not steepen during the pandemic, suggesting the surge impacted cities of all sizes.
The limit
It’s important to note that the paper doesn’t claim a complete democratization of entrepreneurship. Large cities still maintain higher startup rates overall. The surge appears to have lifted rates across the board, but hasn't overturned the established hierarchy. Moreover, the paper focuses solely on firm creation. It doesn’t address the subsequent success or sustainability of these new businesses. A surge in startups doesn’t automatically translate into long-term economic growth. The paper also doesn’t explore the specific types of businesses being created, only the aggregate rate of formation. The rise of “pop-up cities” and co-living experiments, as described in a recent policy document, could be a related phenomenon, but the paper doesn’t directly address this emergent trend.
Back to the decision
Old Man Tiber is still busy. But he's also starting to see a slowdown in the requests for quick office builds. The initial wave of remote-worker entrepreneurs has largely settled, and the pace of new arrivals is slowing. This doesn’t invalidate the broader trend identified by the Federal Reserve researchers, but it underscores the dynamic nature of the situation. The pandemic-driven surge in geographically dispersed entrepreneurship was a powerful force, but its long-term impact will depend on factors beyond the initial relocation wave.
The key takeaway for regional economic developers isn’t simply to attract remote workers, but to create ecosystems that support sustainable business growth. That means investing in infrastructure, fostering local networks, and addressing the challenges faced by entrepreneurs in smaller cities – challenges that, for a brief moment, seemed to have diminished. The question now is whether that moment can be extended, or if the pendulum will swing back towards the established coastal hubs.