M-RCBG Associate Working Paper No. 167
Jobs Saved by the Paycheck Protection Program (PPP): The Importance of Smaller Loans, Flexible Program Requirements, and Targeting
Sewon Park
Winner of the 2021 John Dunlop Undergraduate Thesis Prize
2021
Abstract
The Paycheck Protection Program (PPP) was an expedient, ambitious, and unprecedented policy response to the economic fallout of COVID-19 that worked to keep small businesses afloat and minimize layoffs. Empirical work on the PPP’s ability to translate loans into employment, however, is mixed. I utilize a novel instrumental variable research design whereby I exploit both geographical heterogeneity in the distribution of Small Business Development Centers and the timing of the PPP. I find that a one standard deviation increase in 1st round PPP below $150,000 had a substantial impact on jobs, saving 64.9%, 33.6%, and 41.9% of the average jobs lost in the short, medium, and long run. This highlights the importance of smaller loan sizes. After the PPP Flexibility Act, which loosened requirements for loan forgiveness, additional PPP saved 97.9% of jobs lost. This implies the importance of flexible program requirements. Finally, I find even greater employment effects in counties with more exposure to COVID-impacted industries: additional PPP in counties with above-median Food and Accommodation sector exposure saved 117% of average jobs lost. This implies the importance of targeting, as the PPP had a magnified impact in areas with greater exposure to industries hit hardest by the pandemic.