- In 2020, $510 billion in loans were granted through the Payroll Protection Program.
- Business owners and stakeholders have been the primary beneficiaries of these loans, according to a new study.
- As a result, only 2% of those loans went to low-income households, economists concluded.
The Payroll Protection Program was launched in April 2020 and made up to $510 billion in unsecured, soft loans through the end of the year for up to $10 million. The speed of this unprecedented program helped companies keep their doors open, but workers were not the primary beneficiaries of PPP, according to a study authored by economists earlier this month.
The authors, including Massachusetts Institute of Technology professor David Autor, and economists from the
federal reserve
, found that PPP saved 1.98 million and 3 million employment years over 14 months. The study was conducted using data from payroll software provider ADP and the Bureau of Labor Statistics.
Economists estimated that $115 billion to $175 billion in PPP loans went toward paychecks, meaning only 23% to 34% of PPP funds went directly to workers who would otherwise have lost their jobs.
Where has the rest gone? The remaining 66% to 77% went to business owners and stakeholders, including shareholders, creditors and suppliers.
The authors also estimated that the program spent $170,000 to $257,000 per job-year saved.
“PPP’s breakneck growth, high cost per job saved, and declining frequency have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do anything else,” the dated statement reads National Bureau of Economic Research shared working paper.
The picture becomes clearer when the authors trace how PPP dollars flowed into households. The study estimates that $365.9 billion, or 72% of PPP dollars, ended up going to the top quintile of high earners, who account for a disproportionate share of the country’s income and business owners. The bottom quintile received $13.2 billion, or 2.6% of the $510 billion.
The authors also noted that the increase in GDP from PPP was 0.36 per dollar according to the Congressional Budget Office, versus 0.60 and 0.67 for stimulus checks and expanded unemployment insurance checks.
“Taking into account the highly distributional incidence of PPP payments, we agree that PPP was probably the least effective of the three programs at stimulating macroeconomic activity,” the study said.
The authors blame much of the blame on the PPP’s minimal credit qualifications. The first two tranches, totaling $510 billion, had few requirements other than 500 or fewer employees and proof of financial damage from the pandemic.
The economists recommended that the US prepare a more sophisticated governance system like that in other high-income countries so that it can run programs targeting those Americans most in need in future emergencies.
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