Ending Paycheck Protection Before Economic Recovery Put 2.8M Jobs at Risk

New research has shown that small businesses have emerged from the Paycheck Protection Program (PPP) in no better shape than when they received the loan.

Gusto, a payroll and benefits provider for 100,000 small businesses, found that rolling off of PPP requirements at a time when the economy has not recovered from the toll of the pandemic, and when this winter threatens to exact an even more devastating toll, has left businesses in the lurch. A further 2.8 million jobs are now at risk.

Its research showed that as the PPP covered period expired in November, companies reduced active employment by a statistically significant 0.43 percent.

This drop in weekly net headcount change from +0.22 percent to -0.21 percent represents a 200 percent swing from net headcount growth to net terminations.

As a result of PPP employment requirements expiring, more than 900,000 jobs were lost within the first 4 weeks. This represents approximately 40 percent of the 2.3 million jobs that PPP has been credited with saving.

These programs were the main sources of support the federal government gave to small businesses hurt by the COVID-19 pandemic, and were the centerpiece of the $2.2 trillion CARES act which was approved by Congress in March.

The Small Business Administration (SBA), tasked with approving and processing the money, had processed more than 5.2 million PPP loans to individuals which totaled $525 billion as of November. It also processed Economic Injury Disaster Loan (EIDL) loans worth $195 billion.

Gusto research also found this reduction in employment following the drop off of the support is due largely to a spike in terminations the week that the covered period expires.

Within the week that these headcount criteria expire, the likelihood a worker will lose his or her job increases 25%. These adverse effects are particularly concentrated in sectors hit hard by the pandemic, such as facilities management and retail trade.

The report says: "Applying this causal estimate to all small businesses that received PPP, we find that 232,000 jobs have been lost as companies no longer need to maintain pre-COVID-19 headcount levels to receive PPP loan forgiveness."

The research comes on top of data released last week, which outlined the names of the 10 million businesses and individuals who received pandemic aid under the EIDL and the PPP.

The data showed that more than half of the money from the Treasury Department's fund went to around 5 percent of recipients. In addition, the top 1 percent of loans accounted for more than a quarter of the total loan value.

The PPP data showed that around 600 companies hoovered up the maximum of $10 million allowed under the program. These were mostly larger companies.

As of August, more than 87 percent of loans were for less than $150,000, leading the Treasury Department and SBA to argue that the program primarily benefited smaller businesses.

However, new data highlights that more than half of the $552 billion in that time frame went to bigger businesses. The latest data show that only 28 percent of the money given out amounted to less than $150,000.

On Tuesday afternoon, Treasury Secretary Steven Mnuchin offered House Speaker Nancy Pelosi a $916 billion stimulus proposal as hope for further relief before the end of year grows. The new stimulus package includes a provision for a $600 stimulus check for Americans.

The this data coupled with the information released last week may be instrumental in shaping future stimulus policy and will shed a light on issues with previous programs. The evidence seems to suggest greater and sustained measures to support the economy are needed to prevent jobs numbers from cratering.

Steven Mnuchin is currently negotiating another bill.
Treasury Secretary Steven Mnuchin answers a question during a House Financial Services Committee oversight hearing to discuss the Treasury Department's and Federal Reserve's response to the coronavirus (COVID-19) pandemic on December 2, 2020 in Washington, D.C. Mnuchin proposed changes to the second COVID-19 relief bill working its way through Congress. Getty Images