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

Abstract

Delay in the provision of Paycheck Protection Program (PPP) loans—due to insufficient initial funding under the CARES Act—substantially and persistently reduced employment. Delayed loans increased layoffs and labor force exit between April and May and reduced recalls throughout the summer. Effects are unequally distributed: larger among the self-employed and in very small firms. The magnitude and heterogeneity of effects suggest significant barriers to obtaining external financing, particularly among small firms. Our estimates imply the PPP saved millions of jobs, but larger initial funding could have saved millions more, particularly if it had been directed toward the smallest firms.

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