The Impact of the Paycheck Protection Program on (Really) Small Businesses

Paper author: Allison Cole

This paper uses administrative data from a private payroll processor whose clients are primarily very small businesses (median 5 employees) to measure the effects of financial relief received through the Paycheck Protection Program (PPP). Firms that applied for PPP funds increased their average employment by 7.5% in the five months following the program’s launch relative to otherwise similar firms that did not apply. The positive effects on employment occur primarily in industries in which firms were less affected by government shut-downs or higher levels of COVID-19, namely industries with more employees that are able to work remotely, those that have fewer hourly workers and essential businesses. Novel data on hiring also shows that the program worked as intended by preserving employment matches: positive employment effects occurred due to fewer layoffs, not through more hiring of new or former employees. My estimates imply a cost of approximately $270,000 per job per year at small firms.