The bulk of the loans issued under the government’s $800 billion Paycheck Protection Program (PPP) did not go to workers, but helped business owners and shareholders. That’s the conclusion of a new study released by top economists at the National Bureau of Economic Research. The group, which includes 10 professors and researchers, including MIT economics professor David Autor and several Federal Reserve economists, writes in their paper that the vast majority of PPP loans issued in the first round of disbursements, in 2020 , were not used. to offset employee paychecks. Based on the numbers they calculated, mostly from data from payroll management giant ADP, they estimate that between 23% and 34% of PPP dollars went to workers who would otherwise have lost their jobs. The rest of the loan money – between two-thirds and three-quarters – ended up in the pockets of the company’s owners or shareholders.
The authors estimate that the program was successful in preserving 2-3 million of what they call “employment years” of employment, meaning that the impact of the PPP on job loss was potentially substantial. But they add that it cost $170,000 to $257,000 per year of employment saved, the average amount spent by the government. They note that 94% of businesses that applied for a PPP loan received a PPP loan. But because the criteria for loan forgiveness required keeping employees on the payroll, while capping payroll costs at $100,000 in cash compensation per employee, that means the lion’s share went elsewhere.
Equally troubling, the distribution was “highly regressive”, as it “overwhelmingly fell to high-income households”. According to their article, 72% of the funds went to the fifth-richest household by income, even though, statistically speaking nationally, this group accounts for only 35% of income. They add that the government’s other two pandemic relief programs — pandemic unemployment insurance and stimulus checks — have been distributed much more evenly among U.S. households.
Many previous studies have estimated the total amount of PPP fraud to be high, and these stories have frequently appeared in the media anecdotally. One of the most recent estimates, published in August, assumed that the amount of fraud among PPP loans could be serious, reaching 15%. This is another factor the authors note: “Ironically, the program feature that arguably made the meteoric scaling of PPP possible is also the one that made it potentially the most problematic: the program doesn’t was essentially untargeted.” They write that companies “simply needed to certify that they were ‘substantially affected by COVID-19’ to qualify, and almost all did.” They conclude that a large portion of the PPP loan dollars likely went to companies that “would have remained viable and retained their employees even in the absence of PPP.”