- Report from the National Bureau of Economic Research finds that just 23 to 34 percent of Paycheck Protection Program funds went to preserving jobs, with the remainder buoying business owners and shareholders
- Researchers say the United States lacked the administrative capacity to offer more targeted financial support without slowing delivery of aid
- NBER suggests building capacity for methods such as work sharing and liquidity for smaller firms to prepare for the next large-scale economic crisis
Summary by Dirk Langeveld
Only a small share of Paycheck Protection Program funds went toward preserving jobs, according to a recent analysis by the National Bureau of Economic Research. The report suggests that the findings should encourage policyholders to begin planning for any future relief programs to provide more equitable distribution of funds.
PPP disbursed nearly $800 billion in forgivable loans over three rounds of funding in 2020 and 2021 to help businesses maintain staffing during revenue losses occasioned by the COVID-19 pandemic. About 8.5 million businesses received at least one loan, including 93 percent of small businesses.
The NBER report concluded that just 23 to 34 percent of PPP funds went toward the stated purpose of preserving jobs. The remainder went to business owners and shareholders, including the creditors and suppliers of the firms receiving loans. The study says that this resulted in about three-quarters of the program’s benefits accruing in the top quintile of household income, while other relief methods of stimulus checks and enhanced unemployment had a more equitable distribution.
NEBR relied on key data from the payroll services provider ADP for its research. It concluded that PPP preserved a cumulative total of 2 to 3 million job-years of employment over 14 months, at a hefty cost: $170,000 to $257,000 per job-year retained.
The study says PPP was not better targeted because the United States did not have the administrative infrastructure to better direct funds based on need. It contrasts the program with targeted work sharing and wage subsidy efforts introduced in other high-income nations, which were possible because administrative systems to monitor worker hours and directly support workers’ wages were already in place.
“Lacking such systems, the United States chose to administer emergency aid using a fire hose rather than a fire extinguisher, with the predictable consequence that virtually the entire small business sector was doused with money. This approach may have been necessary, but it was desirable only because the U.S. lacked viable alternatives,” the report concludes. “By building administrative capacity in the years ahead, the United States could more deftly target, calibrate, and deploy its emergency business response systems when most needed.”
The study says that PPP nevertheless “meaningfully blunted pandemic job losses” and reduced the rate of temporary closures among small firms, though it was less clear whether the program helped stem permanent closures. It also acknowledges that establishing a better targeting method would have slowed the delivery of relief to businesses and therefore compromised the program’s efficacy.
However, the study concludes that the untargeted method resulted in a large share of the $525 billion delivered in the first two rounds of PPP lending going to businesses that likely would have stayed solvent and retained employees even without the aid. The third round of funding was directed at smaller businesses. According to the U.S. Small Business Administration, 96 percent of PPP loans in 2021 went to businesses with fewer than 20 employees.
NEBR says that strengthening the capacity to target business support will help prepare the U.S. for the next pandemic or other large-scale economic emergency. The report also suggests that the primary goal of PPP could be better met by the methods used in other high-income nations, including work sharing programs to encourage employers to reduce workers’ hours instead of implementing layoffs.
“A separate liquidity provision program could then be targeted primarily at small firms, which are more likely to be liquidity-constrained,” the report suggests. “Moreover, with better information systems operational, liquidity could be provided in proportion to firms’ decline in revenues as well as firms’ actual fixed obligations.”