Where the PPP Money Went

Who got it and how did it affect them?

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

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

A job-year is defined as one job for one year.

Almost all PPP loans are expected to be forgiven with 94% of eligible small businesses in the U.S. receiving one or more loans under the program. Roughly 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 companies receiving loans.

Key Takeaways

  • NBER analysis of PPP found that 75% of PPP funds went to business owners, shareholders, creditors, and suppliers and roughly 25% to workers who would have otherwise lost their jobs.
  • Marginal propensity to consume (MPC) (spend the money on consumption) for the top 75% of PPP recipients was 0.5, about half that of workers which was 1.0.
  • The high cost ($170K to $250K) per job saved was another unfavorable aspect of the program.
  • The speed with which PPP ramped up and distributed funds was a bright spot in the analysis.
  • Another plus was the percentage (94%) of eligible small businesses that received assistance.
  • Most of the negative outcome is blamed on the untargeted nature of the program due to the lack of administrative capacity in the U.S. to administer a program of this type.
  • Ultimately some percentage of PPP loan funds that went to businesses reinforced the company's bottom line in the form of windfall profit.

75% to Higher-Income Households

NBER found that about 75% of PPP funds went to the top 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 that for recipients of stimulus checks (0.5) but much less than recipients of expanded unemployment benefits (1.0).

Marginal propensity to consume (MPC) is the proportion (expressed as a decimal) of an increase in income that gets spent on consumption. The higher the MPC, the more likely the recipient is to spend the money.

To the extent PPP funds were intended to go to workers who would be likely to spend the money immediately, the program was less than optimum and markedly less effective than expanded unemployment benefits in increasing consumer spending.

2 to 3 million

Job-years saved with PPP loan funds

Jobs Saved and Doors Kept Open

On the other hand, PPP had a measurable and significant positive impact on pandemic 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 that employers would be able to stay open. NBER found this was true for small employers especially. What is less certain is the degree to which small employers would have shuttered their doors permanently versus on a temporary basis. The data, NBER said, offer stronger support for PPP helping small companies avoid temporary closure than for preventing them from shutting their doors forever.

For companies with around 500 employees, there was no consistent evidence that PPP funds influenced temporary or permanent shutdowns. Despite saving jobs during the pandemic, PPP may not have had a significant impact on the preservation of intangible business capital, according to NBER.

Creditors Were Helped

Along with saving jobs and keeping smaller companies open, the PPP program provided indirect financial assistance to business landlords, financial institutions, holders of mortgage-backed securities (MBSs), and suppliers.

While evidence uncovered by NBER of the specific support provided by PPP to these second-tier beneficiaries is scant, available evidence does suggest the impact was positive. At least one other study did find that PPP significantly decreased delinquency on mortgages and other payments in the retail sector.

Windfall Profits for Some Owners and Shareholders

PPP funds were paid to businesses that used the funds to pay retained and previously unemployed workers. Roughly 25% of PPP loan funds were used for that 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 non-payroll expenses, including rent, utilities, and mortgage interest. Using the funds for these expenses made that part of the loan forgivable.

Ultimately some percentage of PPP funds went to, as NBER put it, "owners and shareholders of PPP-receiving firms as residual claimants in cases where businesses would have met some or all of their payroll and other financial obligations absent PPP (AKA, windfall profits)." In other words, some businesses received the benefit of PPP funds but didn't need some or all of those funds in order to stay open and solvent.

Article Sources
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  1. National Bureau of Economic Research. "The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?" Abstract. Accessed Jan. 21, 2022.

  2. Executive Office of the President's Council of Economic Advisors. "Estimates of Job Creations from the American Recovery and Reinvestment Act of 2009." Page 3. Accessed Jan. 21, 2022.

  3. National Bureau of Economic Research. "The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?" Page 2. Accessed Jan. 21, 2022.

  4. National Bureau of Economic Research. "The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?" Page 13. Accessed Jan. 21, 2022.

  5. Argawal, Sumit. "Did the Paycheck Protection Program Help Small Businesses? Evidence from Commercial Mortgage-backed Securities." Accessed Jan. 21, 2022.

  6. National Bureau of Economic Research. "The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?" Page 15. Accessed Jan. 21, 2022.

  7. National Bureau of Economic Research. "The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There?" Page 17. Accessed Jan. 21, 2022.

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