Majority of PPP Loans Went to Business Owners, High-Earning Households

Majority of PPP Loans Went to Business Owners, High-Earning Households
Written by Publishing Team

  • $510 billion in loans were made through the Payroll Protection Program in 2020.
  • And according to a new study, business owners and stakeholders were the main beneficiaries of these loans.
  • As a result, economists have concluded that only 2% of those loans flowed to low-income families.

The Payroll Protection Program was launched in April 2020 and has issued $510 billion in unsecured, low-interest loans of up to $10 million by the end of the year. The unprecedented speed of this program helped companies keep their doors open, but workers were not the main beneficiaries of the public-private partnership, according to a study written by economists earlier this month.

The authors, including Professor David Autor of MIT and economists of MIT

Federal Reserve

, found that purchasing power parity saved 1.98 million and 3 million years of work over a 14-month period. The study was conducted using data from payroll software provider ADP and the Bureau of Labor Statistics.

Economists have estimated that $115 billion to $175 billion in PPP loans went toward paychecks, meaning that only 23% to 34% of PPP money went directly to workers who would otherwise lose their jobs.

Where did the rest go? The remaining 66% to 77% went to business owners and stakeholders, including shareholders, creditors and suppliers.

The authors also estimated that the program spent $170,000 to $257000 per year of work saved.

The working paper shared by the National Office stated: “The sudden expansion of purchasing power parity, the high cost per job created, and its regressive occurrence have a common origin: PPP was not targeted primarily because the United States lacked the administrative infrastructure to do otherwise.” for economic research.

The picture becomes clearer when the authors trace how PPP dollars flow into households. The study estimated that $365.9 billion, or 72%, of PPP dollars ultimately flowed to the top quintile of high-income earners, who make up a disproportionate amount of state and business income. The bottom quintile earned $13.2 billion, or 2.6% of $510 billion.

The authors also note that the purchasing power parity increase per dollar to GDP was 0.36, according to the Congressional Budget Office, versus 0.60 and 0.67 for the stimulus check and the enhanced unemployment insurance check.

“Taking into account the occurrence of the significant distributional skew of PPP payments, we agree that PPPs were probably the least effective of the three programs in boosting the overall economy,” the study states.

The authors place much of the blame on the PPP’s minimum loan qualifications. The first two tranches, totaling $510 billion, had few requirements other than having 500 employees or fewer and testimony to the financial damage caused by the pandemic.

Economists have recommended that the United States prepare a more sophisticated administrative system like those of other high-income countries so that it can implement programs aimed at the neediest Americans during future emergencies.

About the author

Publishing Team

Leave a Comment