Study: PPP Funds Had Small Impact on Employment

YOUNGSTOWN, Ohio – The Paycheck Protection Program only had a small effect on employment, according to research by economists at the University of Chicago, while having a relatively high cost of roughly $120,000 per job saved.

In the working paper, Constantine Yannelis, Joao Granja, Christos Makridis and Eric Zwick examined data released by the Small Business Administration in early December that details every PPP loan approved, as well as information from the Census Bureau, call reports filed by banks in the first quarter and previous research reports on how the program affected employment.

“We don’t want to take a stance on whether the program was worth it or not but it was a relatively high number per job saved,” Yannelis told the Washington Business Journal. “A lot of the benefits went to workers who would have been employed anyway, and they weren’t saving jobs.”

The report, which can be read HERE, looks at the employment impact between the third week of January and the first week of July, using the time before the pandemic as a baseline. The first PPP loans were approved April 3, with the first phase – totaling $349 billion – claimed by April 17.

To put together a picture of how Paycheck Protection Program loans affected employment, the researchers look at business shutdown, declines in hours worked and unemployment claims.

“[We] find no evidence of substantial effects of the PPP on these outcomes,” the report says, “and at most modest effects.”

The researchers found that PPP money may have instead been used on the non-payroll uses the money was green-lit for, such as rent and utility payments, or to build cash reserves. Such uses, the researchers say, would promote business stability, ensuring companies are able to survive the pandemic.

“Firms with greater exposure to the PPP hold more cash on hand, and are more likely to make loan and other scheduled payments,” they wrote.

The paper also saw a link between areas with high concentrations of bank access and the amount of PPP loans distributed, showing that the bulk of funds were directed to areas with the most banks, rather than areas that were hardest hit by the pandemic.

“We find little evidence that funds were targeted towards geographic regions more severely affected by the pandemic. If anything, the opposite is true and funds were targeted towards areas less severely affected by the virus, at least initially,” the report says. “Bank heterogeneity played an important role in mediating funds, affecting who received funds and when their applications were ultimately processed.”

In his interview with the Washington Business Journal, Yannelis pointed out that the efficacy of the Paycheck Protection Program is altered somewhat by the length of the pandemic. When it launched, the program was designed to provide funds to cover eight weeks of operation. The pandemic is now in its ninth month.

“It’s kind of easy to throw stones. It’s harder to build something,” he said. “It’s hard to determine whether something could have been designed in the same amount of time given the constraints. It’s also questionable about whether we would have wanted to do this given what we know now about the duration of the pandemic.”

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