The Paycheck Protection Program (PPP), enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), has provided small businesses with about $800 billion in loans unsecured at low interest rates from April 3, 2020 to May 31. 2021.

Research and analysis conducted by the National Bureau of Economic Research (NBER) estimates that the program preserved 2 to 3 million job-years of employment at a cost of $170,000 to $257,000 per job-year retained.

Nearly all PPP loans are expected to be forgiven, with 94% of eligible small businesses in the United States receiving one or more loans under the program. About 25% of PPP loan funds went directly to workers who would have lost their jobs. The rest (75%) went to business owners, shareholders, creditors and suppliers of businesses receiving loans.

75% to high-income households

The NBER found that about 75% of PPP funds went to the wealthiest 20% of households by income. This resulted in a marginal propensity to consume (MPC) for the majority of PPP recipients that was about the same as stimulus check recipients (0.5) but much lower than unemployment benefit recipients. expanded (1.0).

Insofar as PPP funds were intended to go to workers likely to spend the money immediately, the program was less than optimal and significantly less effective than expanded unemployment benefits in increasing consumer spending.

Jobs saved and doors opened

On the other hand, PPPs have had a measurable and significant positive impact on pandemic-related job losses, saving somewhere between 2 and 3 million job-years, albeit at a substantial cost. With jobs saved and workers on the job, it would also make sense for employers to be able to stay open. The NBER found this to be especially true for small employers. What is less certain is the extent to which small employers would have closed permanently or temporarily. The data, the NBER said, offers stronger support for PPPs helping small businesses avoid temporary closure than preventing them from shutting down forever.

For businesses with around 500 employees, there was no consistent evidence that PPP funds influenced temporary or permanent closures. Despite saving jobs during the pandemic, PPPs may not have had a significant impact on preserving the firm’s intangible capital, according to the NBER.

Creditors were helped

In addition to saving jobs and keeping small businesses open, the PPP program provided indirect financial assistance to business owners, financial institutions, mortgage-backed securities (MBS) holders and suppliers.

Although the evidence uncovered by the NBER on the specific support provided by the PPP to these second-tier beneficiaries is scarce, the available evidence suggests that the impact has been positive. At least one other study has found that PPPs significantly reduce mortgage arrears and other payments in the retail sector.

Windfall benefits for some owners and shareholders

The PPP funds were paid out to companies that used the funds to pay retained and previously unemployed workers. About 25% of PPP loan funds have been used for this purpose. Of the remaining 75% of funds, creditors who would not have been paid also became beneficiaries. Business owners could use loan proceeds to pay for non-wage expenses, including rent, utilities and mortgage interest. Using the funds for these expenses made that part of the loan forgivable.

Ultimately, a certain percentage of the PPP funds went, as the NBER put it, “to the owners and shareholders of the PPP beneficiary companies as residual claimants in cases where the companies had fulfilled some or all of their payroll and other financial obligations in the absence of PPP (AKA, windfall profits).” In other words, some companies benefited from PPP funds but did not need some or all of these funds to remain open and solvent.