Monday, February 6, 2023
HomeHealthcareThe place did the cash from the Paycheck Safety Program (PPP) go?...

The place did the cash from the Paycheck Safety Program (PPP) go? – Healthcare Economist

That’s the query answered in a paper by Autor et al. (2022). Some background on PPP:

Congress enacted the Paycheck Safety Program (PPP), which offered uncollateralized, low-interest loans of as much as $10 million to corporations with fewer than 500 workers—loans that have been forgivable on the situation that recipient corporations maintained employment and wages at near pre-crisis ranges within the two to 6 months following mortgage receipt.

PPP was one for 3 giant federal initiatives to fight the impression of COVID-19 on the US economic system. These three (and related funding) embrace:

  • Paycheck Safety Program: $800 billion
  • Stimulus checks: $800 billion
  • Unemployment advantages: $680 billion

Word that every of those 3 applications was roughly the identical measurement because the American Restoration and Reinvestment Act of 2009 (ARRA), the primary fiscal stimulus handed in response to the 2007-2009 Nice Recession.

What was the impression of PPP? The authors discovered that it:

meaningfully blunted pandemic job losses, preserving someplace between 1.98 and three.0 million job-years of employment throughout and after the pandemic at a considerable value of $169,000 to $258,000 per job-year saved. PPP additionally lowered the speed of non permanent closures amongst small corporations, although it’s much less clear whether or not it lowered everlasting closures. The vast majority of PPP mortgage {dollars} issued in 2020—66 to 77 %— didn’t go to paychecks, nevertheless, however as a substitute accrued to enterprise house owners and shareholders. And since enterprise possession and share-holding are concentrated amongst high-income households, the incidence of this system throughout the family earnings distribution was extremely regressive… three-quarters of PPP advantages accrued to the highest quintile of family earnings. By comparability, the incidence of federal pandemic unemployment insurance coverage and family stimulus funds was way more equally distributed.

Word that this lack of concentrating on doesn’t essentially make PPP a foul program. Policymakers may have insisted on higher concentrating on and offered stricter thresholds for getting the cash. Doing so, nevertheless, doubtless would have considerably slowed down assist supply and lowered program efficacy.

Some extra info:

  • Disbursement was fast: $505 billion in first draw loans have been issued and all however 7% have been issued in 2020, most in April and Might.
  • Enterprise house owners, not workers are major beneficiaries. For the primary 2 tranches of help 23%-34% of loans went to employee compensation; 66%-77% of loans went to enterprise house owners or collectors.
  • A regressive stimulus. In comparison with unemployment insurance coverage or the stimulus bundle, PPP was regressive in nature (see determine under).

Some could argue that PPP’s regressive nature is very problematic. All else equal, redistribution ought to favor the poor. Nevertheless, if small and medium sized companies have been to go bankrupt, that may be detrimental to the economic system not solely within the short-run. If companies dissolve, the know-how these companies constructed up may disappear, as it’s not simple to reconstitute a enterprise as soon as it has folded. Additional, costs may rise resulting from an absence of competitors if many small and medium sized companies–maybe with a much less safe stability sheet–went beneath.

Program description

Companies have been permitted to attract PPP loans value as much as ten weeks of payroll prices—together with wage and wage compensation to not exceed $100,000 per employee, in addition to paid go away, medical insurance prices, different profit prices, and state and native taxes—with a most mortgage measurement of $10 million {dollars}.

Whereas the moniker Paycheck Safety Program means that this system was targeted solely on employment, the standards for mortgage forgiveness reveal one other complementary objective: offering corporations with liquidity to fulfill non-compensation obligations to collectors (like suppliers, banks, and landlords). Companies needed to do 4 issues to qualify for PPP mortgage forgiveness: 1) spend no less than 60 % of the mortgage quantity on payroll bills; 2) spend (no less than) the complete mortgage quantity on whole qualifying bills, together with payroll, utilities, hire, and mortgage funds; 3) preserve common full-time equal employment at its pre-crisis degree; and 4) preserve worker wages at no decrease than 75 % of their pre- disaster degree.

Positive Recharge
Positive Recharge
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