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HomeHealth InsuranceThe place did the cash from the Paycheck Safety Program (PPP) go?...

The place did the cash from the Paycheck Safety Program (PPP) go? – Healthcare Economist


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 offered uncollateralized, low-interest loans of as much as $10 million to corporations with fewer than 500 staff—loans that had 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 massive federal initiatives to fight the affect of COVID-19 on the US financial system. These three (and related funding) embody:

  • Paycheck Safety Program: $800 billion
  • Stimulus checks: $800 billion
  • Unemployment advantages: $680 billion

Notice 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 affect 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 diminished the speed of short-term closures amongst small corporations, although it’s much less clear whether or not it diminished everlasting closures. Nearly all of PPP mortgage {dollars} issued in 2020—66 to 77 p.c— didn’t go to paychecks, nevertheless, however as a substitute 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 earnings distribution was extremely regressive… three-quarters of PPP advantages accrued to the highest quintile of family earnings. By comparability, the incidence of federal pandemic unemployment insurance coverage and family stimulus funds was way more equally distributed.

Notice that this lack of concentrating on doesn’t essentially make PPP a foul program. Policymakers might have insisted on higher concentrating on and offered stricter thresholds for getting the cash. Doing so, nevertheless, probably would have considerably slowed down support supply and diminished program efficacy.

Some extra info:

  • Disbursement was speedy: $505 billion in first draw loans had been issued and all however 7% had been issued in 2020, most in April and Could.
  • Enterprise house owners, not staff are main 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 bundle, PPP was regressive in nature (see determine beneath).

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 had been to go bankrupt, that will 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 isn’t simple to reconstitute a enterprise as soon as it has folded. Additional, costs might rise as a consequence of a scarcity of competitors if many small and medium sized companies–maybe with a much less safe steadiness sheet–went beneath.

Program description

Companies had been permitted to attract PPP loans price 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 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 standards for mortgage forgiveness reveal one other complementary objective: 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 at the very least 60 p.c of the mortgage quantity on payroll bills; 2) spend (at the very least) the total 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.

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