In response to the Covid shutdown recession, the Small Business Administration and Department of the Treasury rolled out the Paycheck Protection Program (PPP). PPP distributed $800 billion within two years with the stated intent to maintain payroll, retain employees laid off due to Covid, and cover overhead.  

new study in the Journal of Economic Perspectives evaluated the efficiency of PPP and revealed astounding government inefficiencies. Though the program was temporary and timely, it was “essentially untargeted.” 

Only about a quarter of PPP funds supported jobs that otherwise would have disappeared, according to the report.  

The program was implemented quickly, prioritizing immediate relief. The study notes, “Ironically, the program feature that arguably made the Paycheck Protection Program’s meteoric scale-up possible is also the feature that made it potentially the most problematic: the program was essentially untargeted, aside from excluding firms with more than 500 workers.” In the end, 94 percent of all small businesses took up a PPP loan. The tradeoff between speed and targeting was significant, resulting in waste.

The program did not prioritize the highest need. Instead, “loans reached the most and least distressed firms—and all those in between—in nearly equal proportions.”

Only roughly 25 percent of the PPP’s efforts went to workers’ wages. The majority of the funds, however, went to the small business’s creditors and suppliers.   

The cost to taxpayers for preserving jobs was a substantial $169,000 to $258,000 per job for a year depending on the firm’s size. 

The study also analyzed who ultimately received these loans and found the results to be highly regressive, with 72 percent of PPP funds going to households with incomes in the top 20 percent. 

Confusion surrounded the program. Initially, demand for loans exceeded the banks’ abilities to execute them. Businesses also lacked clarity on whether the loans would be forgiven. 


Unlike some countries, the U.S. lacked the existing administrative infrastructure for overseeing targeted federal aid to businesses. The study found that such an infrastructure is crucial to preventing waste: “building administrative capacity now would enable greatly improved targeting of either employment or business liquidity when the next pandemic or other large-scale economic emergency occurs, as it surely will.” Accepting the inevitability of both another Covid-style shutdown or economic emergency, along with a massive federal bailout, is quite concerning. 

The study also recommended “work-sharing” to assist in targeting. Work sharing would encourage a reduction in hours across the broader workforce, for example, to prevent mass unemployment in any given group. It would encourage “paying partial unemployment to many, rather than full unemployment to some” which would result in a more stable economy, according to the study’s authors. 

In the end, the program’s timeliness, a reflection of the great need and uncertainty, was a success. But the accolades end there. With essentially no targeting at all, allowing universal takeup, taxpayers were left on the hook for the government’s unintended consequences and lack of alternatives.