I found an interesting bit of reading about a little program known as the Paycheck Protection Program.
It’s one I imagine most, if not all, of you are familiar with to some degree. It’s the early pandemic-era federal program that gave out about $800 billion through the Small Business Administration through uncollateralized, low-interest loans of up to $10 million to businesses with fewer than 500 employees for the purpose of keeping those employees, well, employed.
In its spring issue, the Journal of Economic Perspectives published a paper on the PPP: “The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did It Go There?” It’s an interesting review of the program, looking at its successes as well as its failures.
If you don’t have time to read the whole thing, the St. Louis Fed recently wrote about it and shares some of the highlights.
Let’s start with some of the successes of the PPP. The program preserved between 1.98 million and 3 million job-years of employment during and after the pandemic — a phrase I hesitate to repeat given that we’re still technically in the pandemic, but that’s how the report describes it. It also prevented an unknown number of small firms from closing, at least temporarily. The program was incredibly timely, especially considering it was approved by both houses of Congress and the president, in that it started providing loans as early as April and May of 2020.
It also reached nearly all companies that qualified, as the paper found that 94% of firms with 500 employees or fewer took out a PPP loan. With the second tranche of the loan program, funds still remained by its expiration, indicating that just about everyone who needed one got one.
“While near-universal participation in a government program is not altogether surprising since the program in most cases constituted a pure cash transfer, it is nevertheless a substantial administrative accomplishment: merely handing out $500 billion dollars in two months takes many hands,” according to the paper.
So, the good news: The program reached the companies that qualified for it, it was quickly enacted and it saved millions of jobs.
Here’s the less than great stuff.
The breakdown shows that while the program saved jobs, it did so at the expense of $169,000 to $258,000 per job-year saved. That range is much higher than the average amount paid in wages and benefits to small-business employees in 2020, which was $58,200. The PPP cost taxpayers about $4 for every $1 of wages and benefits the workers received in their saved jobs.
The St. Louis Fed summarizes it this way: “The ‘leakage’ — $3 out of every $4 distributed through the program — went to small-business owners. According to the study, small-business owners shared these dollars with suppliers, whose sales to loan recipients were greater than they would have been without the PPP, and with banks and other lenders in the form of greater loan volumes and fees for PPP loan administration.”
In looking at worker beneficiaries, the authors estimated that at the high end, $175 billion in PPP money flowed to workers whose jobs were saved by the program.
From the St. Louis Fed again: The study "estimated that only about one-quarter of the PPP’s $800 billion outlay ultimately accrued to workers whose jobs were saved. Based on the known distributions of incomes among workers in small businesses, as well as on the incomes of bank and small-business owners (both PPP loan recipients and their suppliers), the authors estimated that 72% of PPP funds were captured by households with incomes in the top 20% of the national distribution.”
So, in other words, the PPP saved millions of jobs using taxpayers’ money at a greater average cost per job than what the average wage and salary was for a small-business employee at the time. Most of that money didn’t go directly to the workers but rather the small business owners, who used about three-quarters of it for other expenses. It also ended up more of a regressive program than progressive, meaning the funds benefited households with higher incomes more.
Ultimately, the program was generally a success in that it helped save jobs and kept business open to continue employing workers. The speed at which the program was developed and put into play left some loose ends open, and it definitely could have benefited from more oversight and scrutiny during its implementation to make sure the funding was going to the people who needed it most.
Feel free to reach out to me at bwroten@hotelnewsnow.com or @HNN_Bryan.
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