Did the paycheck protection program hit the target?

The effects of department of Veterans Affairs medical centers on socio-economic outcomes: Evidence from the Paycheck Protection Program

Do medical facilities also help advance improvements in socio-economic outcomes? We focus on Veterans, a vulnerable group over the COVID-19 pandemic who have access to a comprehensive healthcare network, and the receipt of funds from the Paycheck Protection Program (PPP) between April and June as a source of variation. First, we find that Veterans received 3.5% more loans and 6.8% larger loans than their counterparts (p < 0.01), controlling for a wide array of zipcode characteristics. Second, we develop models to predict the number of PPP loans awarded to Veterans, finding that the inclusion of local VA medical center characteristics adds almost as much explanatory power as the industry and occupational composition in an area and even more than the education, race, and age distribution combined. Our results suggest that VA medical centers can play an important role in helping Veterans thrive even beyond addressing their direct medical needs.

The Paycheck Protection Program and small business performance: Evidence from craft breweries

Abstract

The Paycheck Protection Program (PPP) provided approximately US $790 billion in COVID-19 relief funds to small businesses across the United States. This study merges a verified industry dataset of craft beer producers with government microdata on PPP loan recipients to examine the relationship between PPP funding and small business performance during the pandemic. Results indicate that firms receiving PPP funding were more likely to remain in operation and experience a smaller decline in annual production. However, even within a single industry, COVID-19 had heterogeneous effects on different market segments, demonstrating the importance of a firm's pre-pandemic business model on its flexibility and resiliency during a crisis. Finally, using a quasi-experiment that exploits a natural break in the loan program, the study suggests a positive causal effect of the role of loan approval timing on short-run performance outcomes. These findings provide evidence that the PPP alleviated some losses induced by COVID-19, but questions remain about the program's distribution and long-term impacts.

Plain English Summary

The US federal government created the Paycheck Protection Program (PPP) to minimize the economic damages from COVID-19 on workers and small businesses. One industry hit particularly hard by the pandemic was the craft brewing industry, making it an ideal industry to explore whether the PPP achieved its objectives. The results show that receiving a PPP loan increased the likelihood of remaining in business through the pandemic. Additionally, while most craft breweries experienced a decline in annual production from 2019 to 2020, firms that received a PPP loan experienced a smaller reduction. Breweries that received the earliest funding also performed better, suggesting that loan timing played a key role in performance outcomes. Taken together, the study suggests that the government program helped reduce economic damages associated with COVID-19, but more work is needed to fully understand the program's impact.

Supplementary Information

The online version contains supplementary material available at 10.1007/s11187-022-00717-3.

Effects of COVID-19 related government response stringency and support policies: Evidence from European firms

In this paper we employ survey information on more than 10,000 Southern and Eastern European firms to assess the effects of the COVID-19 related lockdown and government support policies on the business operations of enterprises. Our findings reveal  considerable size- and sector-related heterogeneity, with small firms, and firms such as hotels and restaurants operating in the facilities sector reporting the largest losses in terms of sales when governments increase the strictness of confinement measures. Fixed effects regression estimates suggest that a complete lockdown results in an average year-on-year sales growth that is approximately 63 percentage points lower than it would be without any curtailment measures. The magnitude of the coefficient on year-on-year sales change for a complete lockdown is 14 percentage points higher for small compared to large enterprises. Furthermore, our results suggest that state aid in the form of deferral of payments or wage subsidies are associated with firms' firms' labor market and financial outcomes in times of crisis. For instance, deferrals of payments are linked to between 0.7 and 1.5 fewer layoffs per firm in the surveyed enterprises compared to other types of support.

How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China

Numerous countries cut payroll taxes in response to COVID-19, including China, which reduced employer contributions by up to 21 percentage points. We use administrative data on more than 800,000 Chinese firms to evaluate payroll tax cuts as a business relief measure. We estimate that the tax cuts cover 31.5% of the decline in business cash flow, but labor informality causes 53% of registered firms-24% of aggregate economic activity-to receive no benefits at all. We quantify the targeting of the policy in terms of how much benefits flow to small firms less able to access external finance and to sectors worse hit by COVID-19. We find that (1) small firms and vulnerable industries are comparatively more labor intensive, which leads to desirable targeting; (2) labor informality worsens, but does not eliminate, targeting by firm size; and (3) labor informality is uncorrelated with the COVID-19 shock, and therefore does not affect targeting by sector.

SUPPLEMENTARY INFORMATION

The online version contains supplementary material available at 10.1007/s10797-022-09746-w.

Covid-19, Fiscal Policies, and Small-and-Medium-Sized Firm Survival: Evidence From the Cross-Country Matching Analysis

OBJECTIVE

The present study examines the effect of fiscal policies on firm survival for small-and-medium-sized enterprises in the cross-country level firm-level data.

RESEARCH DESIGN

A propensity score matching analysis is utilised for the post-COVID-19 period firms by using the World Bank Enterprise Follow-up Surveys for the pandemic period. Small-and-medium-sized enterprises are essential to the economy; firm failures can increase in a pandemic.

RESULTS

The obtained findings show that the effect of fiscal policies has an essential effect on small-and-medium-sized enterprises survival in the COVID-19 pandemic period by using a cross-country heterogenous firm-level sample.

CONCLUSIONS

In this context, the present study shed new light on the link between COVID-19-related fiscal policies and small-and-medium-sized firm survival in developing countries.

An evaluation of the Paycheck Protection Program using administrative payroll microdata

The Paycheck Protection Program (PPP), a principal element of the fiscal stimulus enacted by Congress in response to the COVID-19 economic shock, was intended to assist small businesses to maintain employment and wages during the crisis, as well as cover other expenses. We use high-frequency administrative payroll data from ADP-one of the world's largest payroll processing firms-to estimate the causal effect of the PPP on the evolution of employment at PPP-eligible firms relative to PPP-ineligible firms, where eligibility is determined by industry-specific firm-size cutoffs. Our estimates indicate that the PPP boosted employment at eligible firms by between 2 percent to 5 percent at its peak effect around mid-May 2020. The boost to employment waned thereafter and ranged from no effect to a 3 percent boost at the end of 2020. Our estimates imply that employers retained an additional 3.6 million jobs as of mid-May 2020, and 1.4 million jobs at the end of 2020, as a consequence of PPP. The estimated cost per year of employment retained was $ 169 , 000 to $ 258 , 000 , equal to 3.4 to 5.2 times median earnings.

Hysteresis and fiscal stimulus in a recession

The COVID-19 pandemic initiated a deep global recession, and with interest rates at very low levels, warrants consideration of the efficacy of different forms of fiscal stimulus in response. History reveals that deep recessions may cause output and total factor productivity (TFP) hysteresis, a permanent or highly persistent fall in the levels of output and TFP relative to pre-recession trends. This article analyses the output and welfare multipliers of fiscal stimulus during a recession using a macro model with TFP and output hysteresis. We find that transfer payments, public consumption and investment all have high output and welfare multipliers due to their positive effects on TFP in a recessionary environment. However, public investment has the highest output and welfare multipliers, because it has a more positive impact on labour productivity due to the increase in the public capital stock.

Sectoral digital intensity and GDP growth after a large employment shock: A simple extrapolation exercise

We introduce a state-dependent algorithm with minimal data requirements for predicting output dynamics as a function of employment across industries and locations. The method generalizes insights of Okun (1963) by leveraging measures of industry heterogeneity. We use the algorithm to examine gross domestic product (GDP) dynamics following the COVID-19 pandemic of 2020, delivering informative projections of aggregate and sectoral output. Because the pandemic curtailed the ability to perform certain tasks at work, our application examines whether greater reliance on digital technologies can mediate employment and productivity losses. We use industry-level indices of digital task intensity and ability to work from home, together with publicly available data on employment and GDP for Canada, to document that: (i) employment responses after the shock's onset are milder in digitally intensive sectors and (ii) conditional on the size of employment changes, GDP responses are less extreme in digitally intensive sectors. Our projections indicate a return to pre-crisis aggregate output within eight quarters of the initial shock with significant heterogeneity in recovery patterns across sectors.

Earnings shocks and stabilization during COVID-19

This paper documents the magnitude and distribution of U.S. earnings changes during the COVID-19 pandemic and how fiscal relief offset lost earnings. We build panels from administrative tax data to measure annual earnings changes. The frequency of earnings declines during the pandemic were similar to the Great Recession, but the distribution was different. In 2020, workers starting in the bottom half of the distribution were more likely to experience an earnings decline of at least 10 percent. While most workers experiencing large annual earnings declines do not receive unemployment insurance, over half of beneficiaries were made whole in 2020, as unemployment insurance replaced a median of 105 percent of their annual earnings declines. After incorporating unemployment insurance, the likelihood of large earnings declines among low-earning workers was not only smaller than during the Great Recession, but also smaller than in 2019.

The Impact of the COVID-19 Pandemic on Business Ownership Across Racial/Ethnic Groups and Gender

This study examined the economic impact of the COVID-19 pandemic on US older entrepreneurs' businesses using the Health and Retirement Study. We estimated logistic regression models to document the odds of experiencing economic impact. The COVID-19 pandemic has affected nearly 76% of US older entrepreneurs but has disproportionately impacted the businesses of Black, Hispanic, Asian/other races, and women entrepreneurs. Older Black entrepreneurs had significantly higher odds of facing business closure (OR = 2.31, p < .01), implementing new procedures (OR = 2.44, p < .01), workers quitting (OR = 2.95, p < .001), and difficulty paying regular bills (OR = 2.88, p < .001) than their White counterparts. Older Hispanic entrepreneurs also had significantly higher odds of instituting new procedures (OR = 2.27, p < .05), workers quitting (OR = 2.26, p < .01), and difficulty paying regular bills (OR = 2.35, p < .01) than their White counterparts. Similarly, older Asian/other races entrepreneurs were significantly more likely to report difficulty paying regular bills since the start of the pandemic than their White counterparts (OR = 3.11, p < .01). Women entrepreneurs were significantly more likely to close their businesses than their male counterparts (OR = 2.11, p < .001). These significant associations persisted after controlling for confounders. Support for underserved racial/ethnic groups and older women entrepreneurs should focus on accessibility to financial services, capital, and support packages as well as legislative support for ensuring business continuity and success.

Ethics of U.S. government policy responses to the COVID‐19 pandemic: A utilitarianism perspective

COVID‐19 hit the United States in January 2020, quickly resulting in stay‐at‐home orders that sent the U.S. economy into a major recession. The federal government leveraged fiscal, regulatory, and monetary policies to provide relief. Decisions had to be made in a complex environment wrought with difficult choices, complicated by the federalist governing system in the United States. Myers (2016, p. 202) asserted, “If an event like the [1918 influenza] pandemic were to occur in the United States, it is important that the government be prepared, not only in terms of material, but ethically.” We analyze the ethical choices of the initial responses by reviewing early U.S. government responses and the impact of culture, federalism, and justice. We conclude that utilitarian analyses of balancing infection rates and economic impacts must be supplemented with Kantian principles of not treating people as means to an end, balancing the protection of individual freedoms with the good of society, and protecting vulnerable groups. As governments prepare for future crises, ethical considerations should be built into those plans as guardrails to guide decision‐makers.

Banking research in the time of COVID-19☆

Despite the devastating worldwide human and economic tolls of the COVID-19 crisis, it has created some positive economic and financial surprises and opportunities for research. This paper highlights two such favorable surprises – the shortest U.S. recession on record and the avoidance of any banking crisis – and a number of research opportunities. The paper ties the “economic surprise” of the short recession to the speed and size of U.S. stimulus programs during COVID-19 – faster and larger than for the Global Financial Crisis (GFC). We connect the “financial surprise” of the resilient banking sector to prudential policies put in place during and after the GFC that fortified U.S. banks prior to COVID-19. These twin “surprises” are also mutually reinforcing – if either the economy or banking system had failed, so would the other. The paper also reviews extant COVID-19 banking research and suggest paths for future research. It recommends that particular attention be paid to research outside of the U.S. – where fewer favorable “surprises” may be present – as the best way to advance knowledge in this area.

Working Remotely and the Supply-Side Impact of COVID-19

We analyze the supply-side disruptions associated with COVID-19. We find that sectors in which a higher fraction of the workforce is not able to work remotely experienced greater declines in employment and expected revenue growth, worse stock market performance, and higher likelihood of default. The stock market overweights low-exposure industries. Thus, our findings cast light on the disconnect between stock market indices and aggregate outcomes. We combine these ex ante heterogeneous industry exposures with daily financial market data to create a stock return portfolio that tracks news about the supply-side disruptions resulting from the pandemic. (JEL G12, D22, H25, J20, E00)

Received June 1, 2021; editorial decision August 16 2021, by Editor Jeffrey Pontiff.

Entrepreneurship during a pandemic

Commercial and social entrepreneurs are likely to help communities combat public health crises. Research on responses to pandemics has underappreciated the critical role of entrepreneurs. In the context of post-disaster response and recovery, entrepreneurs provide needed goods and services, repair and rebuild disrupted social networks, and can act as focal points for disaster survivors as they develop their plans to rebuild. During a pandemic, entrepreneurs perform similarly important economic and social functions. This article highlights these functions, including (1) providing the goods needed to survive and combat the pandemic, (2) performing the services needed so that people can stay productive and connected during the pandemic, and (3) acting as a source of community support and leadership. It also discusses how entrepreneurs are able to perform these roles despite operating in an environment that constricts the range and nature of entrepreneurial activity. Finally, this article describes a legal regime that will promote entrepreneurship during a pandemic.

Small business under the COVID-19 crisis: Expected short- and medium-run effects of anti-contagion and economic policies

This study makes a causal inference on the effects of anti-contagion and economic policies on small business by conducting a survey on Japanese small business managers' expectations about the pandemic, policies, and firm performance. We first find the business suspension request decreased targeted firms' sales by 10 percentage points on top of the baseline 9 percentage points decline due to COVID-19, even though the Japanese anti-contagion policy was in a form of the government's request that is not legally enforceable. Second, using a discontinuity in the eligibility criteria, we find lump-sum and prompt subsidies improved firms' prospects of survival by 19 percentage points. Third, the medium-run recovery of firms' performance is expected to depend crucially on when infections would end, indicating that the anti-contagion policies could complement longer-run economic goals.

Did the Paycheck Protection Program and Economic Injury Disaster Loan Program get disbursed to minority communities in the early stages of COVID-19?

Social distancing restrictions and health- and economic-driven demand shifts from COVID-19 shut down many small businesses with especially negative impacts on minority owners. Is there evidence that the unprecedented federal government response to help small businesses-the Paycheck Protection Program (PPP) and the related COVID-19 Economic Injury Disaster Loans (EIDL)-which had a stated goal of helping disadvantaged groups, was disbursed evenly to minority communities? In this descriptive research note, we provide the first detailed analysis of how the 2020 PPP and EIDL funds were disbursed across minority communities in the country. From our analysis of data on the universe of loans from these programs and administrative data on employer firms, we generally find a slightly positive relationship between PPP loan receipt per business and the minority share of the population or businesses, although funds flowed to minority communities later than to communities with lower minority shares. PPP loan amounts per employee, however, are negatively related to the minority share of the population. The EIDL program, in contrast, both in numbers per business and amounts per employee, was distributed positively to minority communities.

Policies to Support Businesses through the COVID-19 Shock: A Firm Level Perspective

Relying on a novel dataset covering more than 120,000 firms in 60 countries, this paper contributes to the debate about policies to support businesses through the COVID-19 pandemic. While governments around the world have implemented a wide range of policy support measures, evidence on the reach of these policies, the alignment of measures with firm needs, and their targeting and effectiveness remains scarce. This paper provides the most comprehensive assessment to date of these issues, focusing primarily on developing economies. It shows that policy reach has been limited, especially for more vulnerable firms and countries, and identifies mismatches between policies provided and policies most sought. It also provides some indicative evidence regarding mistargeting of policies and their effectiveness in addressing liquidity constraints and preventing layoffs. This assessment provides some early guidance to policymakers on tailoring their COVID-19 business support packages and points to new directions in data and research efforts needed to guide policy responses to the current pandemic and future crises.

COVID-19, labor demand, and government responses: evidence from job posting data

Using high-frequency job advertisement data, this paper evaluates dynamics among COVID-19, labor market, and government policies. We find that COVID-19 has caused a significant decline in labor demand, by as much as 30%, measured by the number of job advertisements. But the pandemic did not result in noticeable changes in advertised wages. Regarding the roles of government policies, the study finds that the “stay-at-home” measures implemented by states appeared to suppress labor demand. The Paycheck Protection Program (PPP) program helps to stabilize the advertised wages, but also suppresses labor demand. Finally, the pandemic may increase labor demand for certain healthcare-related occupations.

Social consequences of mass quarantine during epidemics: a systematic review with implications for the COVID-19 response

Four billion people worldwide have experienced coronavirus disease 2019 (COVID-19) confinement. Such unprecedented extent of mobility restriction to curb the COVID-19 pandemic may have profound impacts on how individuals live, travel and retain well-being. This systematic review aims to identify (i) the social consequences of mass quarantine-community-wide movement restrictions-during previous and current infectious disease outbreaks and (ii) recommended strategies to mitigate the negative social implications of COVID-19 lockdowns. Considering social determinants of health, we conducted a systematic review by searching five databases (Ovid-MEDLINE, EMBASE, PsycINFO, China National Knowledge Infrastructure and the World Health Organization COVID-19 database) for publications from inception to 9 April 2020. No limitation was set on language, location or study type. Studies that (i) contained peer-reviewed original empirical evidence and (ii) focussed on non-epidemiological implications of mass quarantine were included. We thematically synthesized and reported data due to heterogeneous disease and country context. Of 3067 publications found, 15 original peer-reviewed articles were selected for full-text extraction. Psychological distress, heightened communication inequalities, food insecurity, economic challenges, diminished access to health care, alternative delivery of education and gender-based violence were identified as negative social consequences of community-based quarantine in six infectious disease epidemics, including the current COVID-19 pandemic. In contrast, altruistic attitudes were identified as a positive consequence during previous quarantines. Diverse psychological and social consequences of mass quarantine in previous and current epidemics were evident, but individual country policies had been highly varied in how well they addressed the needs of affected individuals, especially those who are socially marginalized. Policymakers should balance the pros and cons of movement restrictions, facilitate multisectoral action to tackle social inequalities, provide clear and coherent guidance to the public and undertake time-bound policy evaluations to mitigate the negative impact of COVID-19 lockdowns and to establish preparedness strategies for future epidemics.

COVID-19 financial support to small businesses in Switzerland: evaluation and outlook

We analyse small businesses' recourse to public support measures during the COVID-19 crisis using a survey of 1011 self-employed workers and small business owners in Switzerland. We find that "objective" measures of lockdown affectedness and economic structure explain fairly well how businesses availed of support measures to cover labour costs. Recourse to government-backed corona loans, however, appears to be driven to a larger extent by behavioural idiosyncrasies across firms. Specifically, previously indebted businesses took out corona loans more readily than those who had been debt-free before the pandemic. Since uptake is not well in line with firm fundamentals, we propose making loan repayments contingent on future profits. This will more effectively target and sustain businesses that are in trouble today but would be viable in the absence COVID-19.

Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis

In March 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from preexisting credit lines in anticipation of cash flow and financial disruptions stemming from the advent of the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Precrisis financial condition did not constrain large banks’ liquidity supply. Coincident inflows of funds from both the Federal Reserve’s liquidity injection programs and depositors, along with strong preshock bank capital, explain why banks were able to accommodate these liquidity demands. (JEL G21, G28)

Received June 7, 2020; editorial decision June 23, 2020 by Editor Isil Erel.