How has policy affected employment in small businesses in the US?

unemployment america

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Ahu Yildirmaz, Head, ADP Research Institute; Labour Economist, Automatic Data Processing (ADP)


    • The US government allocated $700 billion for the Paycheck Protection Programme (PPP) aimed at small businesses.
  • Employment ended up around 2% higher in firms that were eligible for (and likely accessed) the PPP.
  • Small businesses are essential to the labour market and overall economic recovery.

When COVID-19 swept across the world, it caused a sudden and shocking impact on economic activity. The impact was different for every country and government. The speed and magnitude of job losses were greater than any recession we have experienced in modern history. In the United States alone, employment fell a staggering 22% in the first month of the pandemic. The US federal government responded swiftly with its largest fiscal stimulus package ever, one that was necessary to stem the economic freefall.

As an economist studying the effects of the pandemic, what fascinated me were the size of the downturn, how quickly the government intervened, and the size of the stimulus package.

The US government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion stimulus package, at the end of March 2020. That’s just two months after the first case of COVID-19 was reported in the United States and just weeks after the World Health Organization declared the outbreak a pandemic. The amount of the package is larger than fiscal recoveries enacted during the Great Depression and Great Recession. And we may not be finished. Congress is still discussing how to extend the CARES Act to continue relief efforts.

Of the $2 trillion, $700 billion was allocated for the Paycheck Protection Programme (PPP) aimed at small businesses. A forgivable loan programme enacted to aid in maintaining employment and wages, the PPP has suffered some criticism. For instance, observers argue that ambiguity surrounding forgiveness rules has impeded loan take-up. Others point to an influx of loans in areas that were not the hardest hit by the financial crisis.

But there is evidence that the PPP has been effective in sustaining employment at small firms. As someone who works with real data, I had the opportunity to participate in an early assessment of the PPP’s outcome.

First, to understand the PPP, we look at its criteria. Businesses had to meet the Small Business Administration’s size standard for small firms, which is 500 or fewer employees in most industries. In the Accommodation and Food Services Industry, the 500-employee threshold applies to each establishment rather than the firm. Therefore, all businesses in this particularly hard-hit sector were eligible. The PPP also included sole proprietors, independent contractors and those who are self-employed.

The potential payoff for businesses is substantial. The maximum loan benefit is up to 10 weeks of payroll costs and up to $10 million. To calculate payroll costs, businesses can consider wages and salary up to $100,000 annually per employee, benefit costs, and state and local taxes. To determine employment and wage levels prior to the pandemic, businesses had the choice to calculate average employment (including both full-time and part-time) over the previous 12 months or over the 2019 calendar year.

In our recently published working paper on “An Evaluation of the Paycheck Protection Program Using Administrative Payroll Microdata,” we used anonymous, linked employer-employee panel data to provide a preliminary assessment of the PPP’s effect on employment at small firms. Specifically, from February 2nd through the first week of June, we looked at firms on either side of the PPP’s size eligibility threshold (for most firms) of 500 employees.

The analysis used administrative data from ADP, one of the world’s largest payroll processing firms, to assess the true impact of the PPP on employment. The figure below shows employment for firms with 251-500 employees and 501-750 employees. Their employment levels are indexed to a firm’s average level of employment in February.

At the beginning of the pandemic crisis, both firm size classes showed employment declines of about 14%. Once the PPP is in effect, these two size classes show different courses. The results indicate that employment stabilized more quickly and ended up around 2% higher in firms that likely would have been eligible for the PPP. In other words, the PPP programme raised the level of employment for these firms on average around 2%. These results are based on comparing eligible firms to ineligible firms, regardless of take up.

Employment by firm size for industries with PPP eligibility.
Image: Autor et al “An Evaluation of the Paycheck Protection Program Using Administrative Payroll Microdata”

It is clear from the results that the PPP had an impact on employment at eligible firms. The preliminary findings suggest US employment increased by approximately 1.4 to 3.2 million jobs between February and the first week of June. Our aggregate employment estimates imply that each job supported by the PPP through the end of May cost between $135,000 and $365,000. While the costs seem significant, the full value of the programme is yet to be determined.

coronavirus, health, COVID19, pandemic

What is the World Economic Forum doing to manage emerging risks from COVID-19?

The first global pandemic in more than 100 years, COVID-19 has spread throughout the world at an unprecedented speed. At the time of writing, 4.5 million cases have been confirmed and more than 300,000 people have died due to the virus.

As countries seek to recover, some of the more long-term economic, business, environmental, societal and technological challenges and opportunities are just beginning to become visible.

To help all stakeholders – communities, governments, businesses and individuals understand the emerging risks and follow-on effects generated by the impact of the coronavirus pandemic, the World Economic Forum, in collaboration with Marsh and McLennan and Zurich Insurance Group, has launched its COVID-19 Risks Outlook: A Preliminary Mapping and its Implications – a companion for decision-makers, building on the Forum’s annual Global Risks Report.

Companies are invited to join the Forum’s work to help manage the identified emerging risks of COVID-19 across industries to shape a better future. Read the full COVID-19 Risks Outlook: A Preliminary Mapping and its Implications report here, and our impact story with further information.

Our next step in the research process is to verify these findings by matching the administrative data on eligible firms with the database of companies that received loans. Using ADP payroll data, we can further analyze the effects of the PPP on the employment levels of small businesses to determine its true impact.

While the full influence of these policy interventions remains to be seen, the focus on small businesses signals the importance of this sector to the labour market and overall economic recovery. Preliminary data demonstrates the fiscal stimulus was critical and timely. It is important to examine the effectiveness of these programmes to better inform future policy interventions. In fact, the US Congress is currently debating continuation of the stimulus programme. This may be a novel moment in economic history, but there is much to learn.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Global South cooperation ‘vital’ to climate change fight, development, Guterres tells historic Buenos Aires summit

We must move from egocentric to ecocentric leadership to safeguard our planet

Here are 5 of the biggest threats to our oceans, and how we can solve them

Deliver ‘significant results now’, UN General Assembly President tells COP25 climate conference

Inaction on obesity stands in the way of sustainable development

How much is nature worth? $125 trillion, according to this report

Everything you need to know about Ireland’s economy (Post Brexit)

Do all you can to resolve climate change ‘sticking points’ UN chief urges South-East Asian leaders, in Bali

We must stop a devastating ‘battle to the end’ in southwest Syria, declares UN envoy

Young people hold the key to creating a better future

Joint EU-U.S. statement following the EU-U.S. Justice and Home Affairs Ministerial Meeting

A giant marine heatwave has descended on Alaska

Sweden is a top performer on well-being. Here’s why

Promoting rule of law and fundamental rights in the EU

How to look after someone with coronavirus

The future of crypto-assets, from opportunities to policy implications

Parliament in favour of lifting visa requirements for Kosovars

The Brexit factor in the US-China trade war and other conflicts

Private sector can help accelerate an equitable COVID-19 vaccine rollout – here’s how

Taxation: Historic global agreement to ensure fairer taxation of multinational enterprises

MEPs back plans to halt spread of drug resistance from animals to humans

COVID-19: Commission launches European team of scientific experts to strengthen EU coordination and medical response

Coronavirus: 4 tips for parents who are homeschooling

UN condemns Syrian ‘war on children’ as up to 30 reportedly killed in clashes

UN chief calls for ‘united front’ against anti-Semitism after US synagogue mass-shooting

Traffic congestion cost the US economy nearly $87 billion in 2018

Biblioburro: The amazing donkey libraries of Colombia

Chinese economy to raise speed and help the world grow

EU Summit’s major takeaway: a handkerchief cannot save Greece from austerity

Human rights champions from across the world receive top UN prize

South Sudan ‘revitalized’ peace deal must be inclusive, Security Council hears

UN genocide adviser welcomes historic conviction of former Khmer Rouge leaders

How quantum computing could beat climate change

Two shipwrecks add to ‘alarming increase’ in migrant deaths off Libya coast: IOM

What if big-tech companies became non-profits?

Drug laws must be amended to ‘combat racial discrimination’, UN experts say

EU voters not interested in the European Parliament elections. What’s behind this European Titanic?

Bigotry ‘moving at lightning speed’ Guterres warns, as UN marks the Holocaust

Moves to create a Kosovo army have ‘deteriorated relations’ with Serbia: UN peacekeeping chief

Rule of Law mechanism applies without further delay as of 1 January, MEPs stress

5 principles for effective cybersecurity leadership in a post-COVID world

UN Human Rights Council stands firm on LGBTI violence, Syria detainees and Philippines ‘war on drugs’

UN Human Rights chief urges Venezuela to halt grave rights violations

COVID-19 has ushered in the age of the ‘intangible company’. Here are 4 ways it will change business

Multiculturalism, social diversity and tolerance

Our healthcare systems are ailing. Here’s how to make them better

COVID-19: Commission supports blood services to increase COVID-19 convalescent plasma collection

How innovations in energy storage technology support climate goals

India’s 1.3 billion residents start 21-day lockdown – Today’s coronavirus updates

Colombia: ‘Terrible trend’ of rights defenders killed, harassed; UN calls for ‘significant effort’ to tackle impunity

These countries are pioneering hydrogen power

Margrethe Vestager, European Commissioner for Competition, in Brussels - Berlaymont, last week. (Copyright European Union, 2017 / Source: EC - Audiovisual Service / Photo: Lukasz Kobus)

Amazon, Luxembourg and Ireland hit by EU’s latest turn of the screw over competition

Improvements to pension systems have made them better placed to deliver pensions

Want investors to care about natural resources? Put a price on them

EU and 15 World Trade Organization members establish contingency appeal arrangement for trade disputes

Hurdles in the way of vaccinating one and all against COVID-19-reviewing the challenges for vaccination against COVID-19

President David Sassoli to visit Skopje: “Remain on the European track”

Parliament condemns all forms of racism, hate and violence and calls for action

Capital markets selloff: The financial moguls send messages to monetary authorities

Statelessness for terrorists’ families, never an acceptable option, urges UN rights chief

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: