The Impact of the Paycheck Protection Program on Small Businesses: Evidence from Administrative Payroll Data

Abstract

This paper uses administrative data from a private payroll processor whose clients are primarily very small businesses (median 5 employees) to measure both which firms apply for financial relief through the Paycheck Protection Program (PPP) and the effects of this financial relief. Conditional on industry, larger firms with higher average wages were more likely to apply, indicating that the PPP funds disproportionately flowed towards larger firms with higher paid employees. Firms that applied for PPP funds increased their average employment by 6.25% one month following the program's launch relative to those that did not apply, but the effect declines to zero within three months of applying. There is no measurable impact of the PPP on the firms' wage bills in aggregate. Moreover, the positive effects on employment occur entirely in industries in which firms are not affected by government shut-downs or higher levels of COVID-19, namely industries with more employees that are able to work remotely and fewer hourly workers, or essential businesses. My estimates imply a cost of approximately $300,000 per job preserved as of September 2020, suggesting that less than 10% of the PPP funds went directly to preserved employee wages.