Long Lived Employment Effects of Delays in Emergency Financing for Small Businesses

Abstract

Delays in the provision of loans under Paycheck Protection Program due to the rapid exhaustion of initial funding caused large and persistent unemployment. We estimate that increasing the size of the initial PPP funding by 10 percent could have increased employment by over 2 million jobs through the summer of 2020 and more than 1 million jobs through the fall. The implied costs per job saved are low for a stimulus program, while our effect sizes are in line with recent estimates of the effects of payment timing and the costs of external financing for small businesses. In addition, the smallest firms were most likely to face delay and we find suggestive evidence that the costs of delay were more acute for workers in these firms and for the self-employed. Heterogeneous effects are consistent with these borrowers facing greater difficulty in obtaining alternative financing and suggests that a more targeted program could have achieved even greater efficacy.

Note: An earlier version of this working paper was circulated as "Ten Days Late and Billions of Dollars Short: The Employment Effects of Delays in Paycheck Protection Program Financing".

Keywords: Paycheck Protection Program, CARES Act, Countercyclical Fiscal Policy, COVID-19, Kurzarbeit, Income Support, Small Business Lending, Small and Medium Enterprises (SMEs), Financial Frictions

JEL Classification: E24, H81, J21, G32