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The Tail That Wagged the Dog: What Explains the Persistent Employment Effect of the 10-Day PPP Funding Delay?

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Abstract

This study explores the mechanisms explaining the large, persistent effect of the 10-day funding delay in the 2020 Paycheck Protection Program (PPP) on employment recovery during the COVID-19 pandemic, as estimated by Doniger and Kay (2021). We find that the top 1 percent of urban counties by population fully account for the significant effect of the delay on county-level employment. The strong correlation between worse loan delay and slower employment growth in these counties is due to a factor commonly omitted from analyses: The nature of business and the high rate of human interactions in major urban centers render these areas exceptionally and persistently vulnerable to infectious diseases. Moreover, we find that receiving more PPP funding and more transfers from other pandemic-related assistance programs contributed significantly more to local economic recovery compared with receiving PPP funds earlier.

Suggested Citation

  • Olga Gorbachev & Maria Jose Luengo-Prado & J. Christina Wang, 2023. "The Tail That Wagged the Dog: What Explains the Persistent Employment Effect of the 10-Day PPP Funding Delay?," Working Papers 23-6, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:96572
    DOI: 10.29412/res.wp.2023.06
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    More about this item

    Keywords

    COVID-19; Paycheck Protection Program; small business credit; remote work; employment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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