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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 have 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 giant federal initiatives to fight the affect of COVID-19 on the US financial system. These three (and related funding) embrace:

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

Notice that every of those 3 applications was roughly the identical dimension because the American Restoration and Reinvestment Act of 2009 (ARRA), the primary 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 price of $169,000 to $258,000 per job-year saved. PPP additionally decreased the speed of momentary closures amongst small corporations, although it’s much less clear whether or not it decreased everlasting closures. The vast majority of PPP mortgage {dollars} issued in 2020—66 to 77 %— didn’t go to paychecks, nonetheless, however as an alternative 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 much more equally distributed.

Notice that this lack of focusing on doesn’t essentially make PPP a nasty program. Policymakers may have insisted on higher focusing on and offered stricter thresholds for getting the cash. Doing so, nonetheless, seemingly would have considerably slowed down support supply and decreased program efficacy.

Some extra data:

  • Disbursement was speedy: $505 billion in first draw loans have been issued and all however 7% have 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 package deal, PPP was regressive in nature (see determine under).

Some could argue that PPP’s regressive nature is extremely problematic. All else equal, redistribution ought to favor the poor. Nevertheless, if small and medium sized companies have 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 may disappear, as it’s not simple to reconstitute a enterprise as soon as it has folded. Additional, costs may rise resulting from a scarcity of competitors if many small and medium sized companies–maybe with a much less safe stability sheet–went below.

Program description

Companies have been permitted to attract PPP loans value 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 health 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 targeted solely on employment, the standards for mortgage forgiveness reveal one other complementary aim: 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 least 60 % of the mortgage quantity on payroll bills; 2) spend (at the least) the total mortgage quantity on complete qualifying bills, together with payroll, utilities, hire, and mortgage funds; 3) preserve common full-time equal employment at its pre-crisis stage; and 4) preserve worker wages at no decrease than 75 % of their pre- disaster stage.

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