*2.2. How Does Survival of New Businesses Determine the Resilience of the Region?*

Recent empirical investigations have highlighted the contribution made by entrepreneurs and local businesses to the recovery of the local economy from exogenous shocks [22–24]. Entrepreneurship provides local policymakers with an appropriate tool to remove path dependency and the threat of lock-in in the local economy [25]. In the aftermath of the Great Recession, local authorities in many states in the U.S. initiated policy measures to promote entrepreneurship and business ventures in sunrise sectors, with the motivation of stimulating economic growth and reducing dependency on historically dominant sectors.

New businesses provide diversity to the local economy [26]. Given their small size, for all the challenges borne by new businesses, they respond faster to external shocks than their larger counterparts. Not only are they able to adapt to the changes, but they are also able to innovate to respond to the repercussions of the shock [23].

We find that risk in local labor markets helps in the survival of new businesses in metro counties and MSAs. Risk manifested through employment-based and income-based portfolios increases the likelihood of survival of new businesses. This impact has been observed to be stronger during the recent recessions in these regional units.

Economists are increasingly using the lens of resilience to investigate the contribution of new businesses and young establishments when evaluating the responses of regional economies to recent recessions. This ability to absorb, endure and recover from an exogenous shock is commonly referred to as resilience.

Resilience is commonly defined from engineering, ecological, and adaptive perspectives. From an engineering perspective, resilience refers to the displacement of an entity from its equilibrium, caused by an exogenous shock, and the subsequent return to the original equilibrium [27,28]. From an ecological perspective, resilience refers to a subsequent shift towards a new equilibrium, in response to displacement caused by the exogenous shock [27,29]. From an adaptive perspective, resilience follows an evolutionary approach, whereby an entity evolves over time to create new sustainable paths by adapting to changes occurring in its environment [30,31].

In this paper, we employ the definition of resilience from an ecological perspective. We find that the economic downturn highlights the undercurrents operating in the local labor market. The economic agents absorb and endure the economic shock, and eventually the economy recovers to achieve a new steady state after a period of time. This process of absorbing, enduring, and recovering over a period of time to reach a new steady state is significantly determined by the dynamics prevalent in the local labor market besides the existing stock of economic resources, local amenities, and level of aid received.

The ability to survive in the face of adverse economic downturns also concerns the human element, as the competencies and skills of both employees and the entrepreneur are entwined with the business. The success and failure of a business are determined, to a large extent, by the fortitude, perseverance, patience, and ingenuity displayed by the employees during challenging times. The resilience displayed by new businesses is hence related to the resilience displayed by the employees, which further determines the resilience of the community.
