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

79 Pages Posted: 3 Feb 2021 Last revised: 4 Feb 2022

See all articles by Cynthia Doniger

Cynthia Doniger

Board of Governors of the Federal Reserve System

Benjamin S. Kay

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2022

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

Suggested Citation

Doniger, Cynthia and Kay, Benjamin, Long Lived Employment Effects of Delays in Emergency Financing for Small Businesses (February 1, 2022). Available at SSRN: https://ssrn.com/abstract=3747223 or http://dx.doi.org/10.2139/ssrn.3747223

Cynthia Doniger

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Benjamin Kay (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/benjamin-s-kay.htm

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