Paycheck Protection Program: County-Level Determinants and Effect on Unemployment

This paper uses U.S. county-level data to study the determinants and effects of the Paycheck Protection Program (PPP). The paper first overviews the timeline and institutional aspects of the PPP, implemented in the second quarter of 2020 and worth about $669 billion in forgivable small business loans guaranteed by the Small Business Administration (SBA). It then studies the determinants of the county-level ratios of PPP loans per job lost during the original unemployment surge associated with the onset of the COVID-19 pandemic in late March 2020 and finds that it does not appear to be a major driver of the PPP loan concentration; instead, it was primarily driven by the local banking conditions and demographic factors. The second part of this paper uses the method of local projections to determine whether the participation in the PPP program improved economic conditions following its implementation. Impulse responses in the standard linear framework are positive and statistically significant, albeit economically negligible, suggesting that the PPP was entirely ineffective in stabilizing labor market conditions. Extending the framework to state-dependent local projections reverses this result: PPP lending had a significant effect on reducing unemployment on average and especially in counties with strong banking liquidity and an educated labor force.