Updated from original report on December 8, 2020. Additional analysis, and a full explanation of the methodology, can be found here.

A key element of fiscal support enacted in the wake of the COVID-19-induced recession was the Paycheck Protection Program (PPP), which provided temporary incentives for small businesses to keep employees on payroll as the economy recovered. Through PPP, the Small Business Administration disbursed over $500 billion in loans to small businesses, which were fully refundable given firms met specific criteria: most importantly, businesses were required to (1) spend no less than 60% of the loan amount on payroll costs and (2) maintain pre-pandemic payroll levels through a specified time period. 

Many businesses are now reaching the time period required to maintain payroll levels, and are doing so at an especially fragile time in the economy: employment gains among small businesses are crawling along, COVID-19 cases are reaching daily levels exceeding those in the spring, and colder weather threatens to wipe out 1.4-2.8 million jobs in the Retail and Leisure and Hospitality industries.

We’ve analyzed the differences in the exact week that small businesses complete their PPP forgiveness requirements to calculate the effect of these criteria on a firm’s hiring and termination behavior. We find that, as the PPP Covered Period expired, companies reduced active employment by a statistically significant 0.43 percent. Off of a baseline net hiring rate of 0.22 percent, this change represents a 200% drop in the net hiring rate. This reduction in employment is due largely to a spike in terminations within the first 4 weeks that the covered period expires. Using publicly-available data on loan take-up, we estimate that more than 900,000 jobs were lost as a result of requirements for PPP loan forgiveness expiring, which represents approximately 40% of the 2.3 million jobs that PPP has been credited with saving.

Key Findings

  • As the PPP Covered Period expired, companies reduced active employment by a statistically significant 0.43 percent. This drop in weekly net headcount change from +0.22% to -0.21% represents a 200% swing from net headcount growth to net terminations.
  • As a result of PPP employment requirements expiring, more than 900,000 jobs were lost within the first 4 weeks. This represents approximately 40% of the 2.3 million jobs that PPP has been credited with saving.
  • This reduction in employment is due largely to a spike in terminations the week that the covered period expires. Within the week that these headcount criteria expire, the likelihood a worker will lose his or her job increases 25%. These adverse effects are particularly concentrated in sectors hit hard by the pandemic, such as Facilities Management and Retail Trade.
  • Applying this causal estimate to all small businesses that received PPP, we find that 232,000 jobs have been lost as companies no longer need to maintain pre-COVID-19 headcount levels to receive PPP loan forgiveness.

Basics: PPP and the Covered Period

From April 3, 2020 to August 8, 2020 all small businesses were able to apply for government-guaranteed loans administered through private lenders. These loans are up to 100% forgivable, given companies adhere to specific guidelines set out by the SBA. Companies must spend at least 60% of the loan on payroll costs, and the remainder may only be spent on eligible expenses including rent, mortgage interest, and utilities.

Finally, and most importantly for this work, the loan recipient must maintain a specified average level of employment over the length of the “covered period” to receive loan forgiveness. The Covered Period is the 8 or 24-week period beginning on the PPP Loan Disbursement Date. With few exceptions, the required employment level the employer must maintain is either relative to February 15, 2019, to June 30, 2019 or (for seasonal employers) any 12-week period between May and September 2019. 


We combine payroll data from 37,316 Gusto users who received PPP loans with details of their loan terms entered in the PPP Forgiveness Tracker, a service provided by Gusto to help small businesses track their PPP funds and streamline the forgiveness application process.These details include the date the loan was disbursed and the length of the covered period for that loan. In this way, we can observe the date they are no longer subject to the PPP forgiveness conditions.

Figure 1 plots the weekly net hiring rate (hires – terminations) for firms in this sample, by weeks relative to the expiration date of their covered period. For instance, “-1” represents the week of the year immediately prior to expiration, “0” the week containing the day their covered period expires, and “1” the week immediately after the covered period ends. 

There is a striking decline in net hiring rate as companies cross the expiration week, beginning a week or two beforehand. The method used to identify the expiration week – the first full week — means such a pattern is not surprising, given companies may have reached the end of their covered period towards the end of the prior week. 

Figure 1: % Net Headcount Change Across the Covered Period Expiration

Figures 2 and 3 plot the two variables that determine the net change in headcount: gross hiring rate and gross termination rate. Hiring drops gradually as firms approach the expiration of the covered period, with the most significant drop between week of and the week after expiration. The hiring rate also continues to drop as companies move farther from the expiration week. As plotted in Figure 4, companies significantly increase their termination rates as the covered period expires, before it drops to a lower, though still elevated level  in the following weeks. Taken together, these trends indicate that the decrease in net hiring across firms is driven by slight drop in hiring, but mainly by a large increase in terminations as companies are relieved of headcount constraints related to PPP loan forgiveness.

Figures 2 and 3: Gross Hiring and Termination Rates Across the Covered Period Expiration

Table 1 estimates the effect of the covered period expiration on employment (net hiring, gross hiring, and gross termination rates) in a formal regression framework. We estimate the effect for all companies pooled together, and then individually for three subsectors hit particularly hard by the pandemic: Food & Beverage, Facilities, and Retail Trade. 

We estimate that as the covered period ended and companies no longer needed to maintain headcount to receive forgiveness, companies’ net hiring rate fell by 0.414 percentage points. Given a mean net hiring rate before expiration of 0.2%, this drop represents a 200% drop in the net hiring rate. While there is a small drop in hiring, there is a statistically significant spike in terminations of 0.246 percentage points. 

Columns (2)-(4) present estimates across Food & Beverage, Facilities, and Retail subsectors. While the estimate on Food & Beverage is too noisy to make meaningful conclusions, Facilities and Retail Trade experience much larger and (in the case of the Retail companies) statistically significant drop in hiring of 1-1.3 percentage.

(1)All Companies(2)Food & Beverage(3)Facilities(4) Retail Trade
A. Net Hiring Rate -0.414*** (0.145) 0.399 (1.367) -1.081 (0.679) -1.324*** (0.557)
Pre-Treatment Mean: 0.221% 0.284% 0.837% 0.499%
B. Gross Hiring Rate -0.049 (0.060)0.892 (0.682)-0.072 (0.549)-0.287 (0.332)
Pre-Treatment Mean:1.198% 2.746% 2.786% 1.579%
C. Gross Termination Rate 0.246*** (0.059) 0.174 (0.395) 0.838** (0.480) 0.816** (0.415)
Pre-Treatment Mean:0.977% 2.462% 1.949% 1.080%
Number of Observations 304,915 13,390 4,81620,649

*** = p<0.01, ** = p<0.05, * = p<0.1
Sources: Gusto, LLC
Notes: Payroll data is calculated at the firm-level PPP loan terms are self-reported in the PPP Forgiveness Tracker. Number of employees measures active employees on a firm’s payroll. Standard errors are clustered at the firm level.

Aggregate Effects 

Finally, we use these findings to infer aggregate employment effects of the expiration of these PPP headcount requirements among all businesses who received PPP loans, using loan-level data from the Treasury Department.

We compute aggregate employment effects by taking our preferred treatment estimate across all firms and scaling it by an estimate of the number of workers who worked at firms taking PPP loans. Prior work has estimated that 70 million workers work at PPP-eligible firms, and we estimate that take-up of PPP loans among businesses analyzed in this work (<50 employees) was about 81%. These firms decreased headcount by 0.41 percent, which amounts to an immediate aggregate drop in headcount of (70,000,000*0.81*0.0041) = 232,000 jobs per week following the expiration of the covered period. We estimate this drop in weekly net hiring using data over the four weeks following the covered period expiration, so we can extend this estimated drop in weekly net hiring rate over four weeks, to a monthly rate of roughly 1.6%. Thus, over the month after PPP expired, firms reduced net employment by ((0.016)*0.81*70,000,000 =) 907,200 jobs. 

Running the estimates in Table 1 week-by-week, we estimate the weekly reductions in headcount over the first four weeks to be: -0.29%, -0.77%, -0.25%, and -0.16%, respectively. These estimates indicate that 72% of the employment losses occurred in the first two weeks after the firm’s covered period expires, while 28% occurred in the subsequent two weeks.

Policy Options

This work finds that small businesses have significantly decreased their headcounts as their PPP funds run out and they are freed of payroll requirements for loan forgiveness. This finding strongly suggests that companies are emerging from their PPP experience in no better shape than when they received the loan–despite PPP’s stated goal of providing temporary payroll support as the economy recovers and small businesses emerge in better shape. They are rolling off of PPP requirements at a time when the economy has not recovered from the toll of the pandemic in the spring, and when this winter threatens to exact an even more devastating toll. 

Policymakers have several options to avoid this outcome. First, they should immediately enact a stimulus package to help workers and businesses cope with the ongoing economic pain. Such a plan must include help for small businesses to operate safely in the winter, such as forgivable loans for outdoor heaters, masks, gloves, and face shields and a general winter tax credit for the hardest-hit businesses. Second, and more immediately, they must allow companies who received PPP to take a second draw of the remaining $134 billion in funds that were allocated but went unspent. Taken together, these actions could avert an economic downturn equal to or exceeding what we experienced in Spring ‘20. 


Figure 4: % Net Headcount Change Across the Covered Period Expiration: Facilities

Figure 5: % Net Headcount Change Across the Covered Period Expiration: Food & Beverage

Figure 6: % Net Headcount Change Across the Covered Period Expiration: Retail

Luke Pardue Luke Pardue was an Economist at Gusto, researching how public policies help small businesses and their workers thrive. He received his Ph.D. from the University of Maryland, where he studied the effects of government programs on disadvantaged populations’ housing and labor market outcomes.
Back to top