Ten Days Late and Billions of Dollars Short: The Employment Effects of Delays in Paycheck Protection Program Financing

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 job losses in May and persistently reduced recalls throughout the summer. The magnitude and heterogeneity of effects suggest significant barriers to obtaining external financing, particularly among small firms. Effects are inequitably distributed: larger among the self-employed, less well paid, less well educated and--importantly for the design of future programs--in very 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. About half of the jobs lost to insufficient PPP funding are lost in firms with fewer than 10 employees, despite such firms accounting for less than 20 percent of employment.

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