NEW YORK–The Paycheck Protection Program, in which credit unions were active participants and funneled hundreds of millions of dollars in loans to members, may have saved jobs, but at an extraordinarily high cost, according to a new analysis.
In all, some $800 billion was distributed by the federal government to the PPP, but the new analysis reveals that only about a quarter of the money spent by the program paid wages that would have otherwise been lost, partly because the government steadily loosened the rules for how businesses could use the money as the pandemic dragged on, reported the New York Times.
“And because many businesses remained healthy enough to survive without the program, another analysis found, the looser rules meant the Paycheck Protection Program ended up subsidizing business owners more than their workers,” the Times added.
David Autor, an economics professor at the Massachusetts Institute of Technology who led a 10-member team that studied the program, told the Times, “Jobs and businesses are two separate things. We tried to figure out, ‘Where did the money go?’ — and it turns out it didn’t primarily go to workers who would have lost jobs. It went to business owners and their shareholders and their creditors.”
One Counterpoint
The new analysis only confirms what several earlier analyses also found, that the PPP had little effect on preserving jobs.
But Michael Dalton, a research economist for the Bureau of Labor Statistics who drew on extensive wage records collected by the government that other researchers did not have access to, told the Times it had performed better than he expected.
According to Dalton, within one month of being approved, companies that got loans had an average head count 8% higher than comparable businesses that didn’t. After seven months, their work forces were still 4% larger, maintaining a lead even as hiring nationwide began to bounce back.
“And some ventures that would have been forced out of business stayed alive. Businesses that received a loan from the program were 5.8% less likely to be closed one month after receiving the money, and 3.5% less likely to be shut down after seven months, Dr. Dalton found,” the Times reported.
The effects were strongest for the smallest businesses and for those in areas with higher poverty rates, Dalton added.
‘Extremely Inefficient’
But overall, according to the analysis by Autor’s group, the Paycheck Protection Program was extremely inefficient. For every $1 in wages that it prevented from being lost, it handed out $3.13 that went somewhere else, the group found.
A report put out for comment last month by the National Bureau of Economic Research, put the cost of saving a job for a year at $169,300 — far more than the $58,200 average compensation for those jobs, according to the group’s calculations, according to the Times.
The analysis further found 72% of the program’s relief money ended up in the hands of those whose household income is in America’s top 20%, Autor’s group reported, saying that’s because the relief effort’s shifting goals ultimately put less of a premium on worker pay.
As the Times noted, when lawmakers created the program in March 2020, they anticipated a short period of intense disruption. Covering employers’ payrolls for eight weeks, they figured, would be enough to get them through the worst of the COVID-19 crisis.
‘They Guessed Wrong’
“They guessed wrong. As the pandemic dragged on and businesses’ woes deepened, lawmakers softened the program’s rules and refashioned it into a more general small-business support effort,” the Times added. “Most notably, they gutted the requirement that borrowers who wanted their loans forgiven maintain their prepandemic head counts. And they reduced the percentage of the loan that borrowers seeking forgiveness had to spend on payroll, to 60% from 75%.
“Out of the roughly $510 billion the program lent in 2020, a maximum of $175 billion — about 34%— went to paying workers who would have lost their jobs, Dr. Autor’s team found. Money that didn’t specifically preserve jobs was effectively a windfall for business owners — on the whole a wealthy group,” the analysis added.
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