That’s the query answered in a paper by Autor et al. (2022). Some background on PPP:
Congress enacted the Paycheck Safety Program (PPP), which supplied uncollateralized, low-interest loans of as much as $10 million to corporations with fewer than 500 staff—loans that have been forgivable on the situation that recipient corporations maintained employment and wages at near pre-crisis ranges within the two to 6 months following mortgage receipt.
PPP was one for 3 giant federal initiatives to fight the impression of COVID-19 on the US financial system. These three (and related funding) embrace:
- Paycheck Safety Program: $800 billion
- Stimulus checks: $800 billion
- Unemployment advantages: $680 billion
Be aware that every of those 3 packages was roughly the identical dimension because the American Restoration and Reinvestment Act of 2009 (ARRA), the principle fiscal stimulus handed in response to the 2007-2009 Nice Recession.
What was the impression of PPP? The authors discovered that it:
meaningfully blunted pandemic job losses, preserving someplace between 1.98 and three.0 million job-years of employment throughout and after the pandemic at a considerable value of $169,000 to $258,000 per job-year saved. PPP additionally lowered the speed of momentary closures amongst small corporations, although it’s much less clear whether or not it lowered everlasting closures. Nearly all of PPP mortgage {dollars} issued in 2020—66 to 77 p.c— didn’t go to paychecks, nevertheless, however as an alternative accrued to enterprise house owners and shareholders. And since enterprise possession and share-holding are concentrated amongst high-income households, the incidence of this system throughout the family revenue distribution was extremely regressive… three-quarters of PPP advantages accrued to the highest quintile of family revenue. By comparability, the incidence of federal pandemic unemployment insurance coverage and family stimulus funds was way more equally distributed.
Be aware that this lack of focusing on doesn’t essentially make PPP a nasty program. Policymakers might have insisted on higher focusing on and supplied stricter thresholds for getting the cash. Doing so, nevertheless, doubtless would have considerably slowed down help supply and lowered program efficacy.
Some further data:
- Disbursement was fast: $505 billion in first draw loans have been issued and all however 7% have been issued in 2020, most in April and Might.
- Enterprise house owners, not staff are major beneficiaries. For the primary 2 tranches of help 23%-34% of loans went to employee compensation; 66%-77% of loans went to enterprise house owners or collectors.
- A regressive stimulus. In comparison with unemployment insurance coverage or the stimulus package deal, PPP was regressive in nature (see determine under).
Some might argue that PPP’s regressive nature is extremely problematic. All else equal, redistribution ought to favor the poor. Nonetheless, if small and medium sized companies have been to go bankrupt, that may be detrimental to the financial system not solely within the short-run. If companies dissolve, the know-how these companies constructed up might disappear, as it’s not simple to reconstitute a enterprise as soon as it has folded. Additional, costs might rise as a result of an absence of competitors if many small and medium sized companies–maybe with a much less safe stability sheet–went beneath.
Program description
Companies have been permitted to attract PPP loans value as much as ten weeks of payroll prices—together with wage and wage compensation to not exceed $100,000 per employee, in addition to paid depart, medical health insurance prices, different profit prices, and state and native taxes—with a most mortgage dimension of $10 million {dollars}.
Whereas the moniker Paycheck Safety Program means that this system was centered solely on employment, the factors for mortgage forgiveness reveal one other complementary purpose: offering corporations with liquidity to fulfill non-compensation obligations to collectors (like suppliers, banks, and landlords). Companies needed to do 4 issues to qualify for PPP mortgage forgiveness: 1) spend not less than 60 p.c of the mortgage quantity on payroll bills; 2) spend (not less than) the complete mortgage quantity on complete qualifying bills, together with payroll, utilities, hire, and mortgage funds; 3) keep common full-time equal employment at its pre-crisis stage; and 4) keep worker wages at no decrease than 75 p.c of their pre- disaster stage.
