There is no conflict of interest.
Citation
Pardue, L. M. (2021). Essays on the Effects of Public Policies on Housing, Employment, and Income Inequality. (Publication No. 28777370). [Doctoral dissertation, University of Maryland, College Park]. Dissertations and Theses Global.
Highlights
- The study's objective was to examine the impact of the Paycheck Protection Program (PPP) on employment outcomes among small businesses.
- The study was a nonexperimental design that used data from a small business payroll and benefits platform and statistical models to examine changes in hiring and termination rates before and after PPP coverage ended.
- The study found that net hiring significantly decreased in the week following the end of the PPP loan period, caused by a drop in hiring and a statistically significant increase in layoffs.
- This study receives a low evidence rating. This means we are not confident that the estimated effects are attributable to the Paycheck Protection Program (PPP); other factors are likely to have contributed.
Intervention Examined
Paycheck Protection Program (PPP)
Features of the Intervention
The Paycheck Protection Program (PPP) was created by Congress in the spring of 2020 to ease the economic effects of the COVID-19 pandemic and to help small businesses during a temporary public health emergency. From April 3 to August 8, 2020, businesses with fewer than 500 employees could apply for PPP loans to cover payroll for 8 or 24 weeks. The loans could be fully forgiven if at least 60% was used for payroll costs, with the remainder allocated to eligible expenses such as mortgage interest, rent, or utilities. Recipients were required to maintain a specified average employment level (based on 2019 data) throughout the 8- or 24-week “covered period” that began on the loan disbursement date. The PPP aimed to help small businesses, which typically do not have large amounts of savings or easy access to other capital during economic downturns. It also allowed firms to retain experienced employees for the duration of the PPP.
Features of the Study
The study used a difference-in-differences analysis to examine changes in small businesses’ hiring and termination/layoff rates after their PPP covered period ended compared to their rates during the PPP covered period. The author used data from a small business payroll and benefits platform that included the dates of hires, terminations, and layoffs, as well as PPP loan disbursement and end dates. This national database contained information from March 2020 through January 2021. The study sample included 37,316 small businesses across the United States. On average, each firm had 7.8 employees and obtained a PPP loan of about $80,000. Approximately 44% of firms received loans with an 8-week covered period, while the other 56% had loans with a 24-week covered period. The author used a statistical model to calculate the average change in small businesses' net hiring, gross hiring, and gross layoff rates in the five weeks after their PPP covered period ended. The author also examined average changes in hiring and layoffs on small businesses in industries severely affected (“hit hard”) by COVID-19, including retail, arts and entertainment, leisure and hospitality, and other personal service sectors.
Findings
Employment
- The study found that as small businesses’ PPP covered periods ended, their net hiring rate experienced a statistically significant decrease in comparison to the net hiring rate before the PPP covered period ended. There was also a statistically significant increase in gross termination rates after the PPP covered period ended.
- In industries hit hard by the pandemic, the decline in net hiring rate after the PPP covered period ended was not significant, though there was a larger and statistically significant increase in the gross termination rate.
Considerations for Interpreting the Findings
The author used a difference-in-differences model that controlled for firm and week fixed effects. However, the author did not define the firm fixed effects and did not address other factors that might have influenced hiring or layoff decisions, including the size of the firms (i.e., number of employees) and their geographic location. The study also examined the effects of the PPP covered period on businesses in sectors defined as “hard-hit” by COVID-19 but does not account for possible differences between businesses in different sectors. In CLEAR, for studies examining the outcome of organizations, the model must include statistical controls for firm size, state, and sector in addition to a pre-intervention outcome of interest. Therefore, the study is not eligible for a moderate causal evidence rating, the highest rating available for nonexperimental designs.
Causal Evidence Rating
The quality of causal evidence presented in this report is low because the author did not include sufficient controls in the statistical model. This means we are not confident that the estimated effects are attributable to the Payroll Protection Program (PPP); other factors are likely to have contributed.