By Ann Markusen
Umn humphrey school
Since March, trillions of dollars of pandemic-related aid have flowed from the federal government to the states. This aid took many forms including direct addon-s to unemployment payments to workers and grants and loans to businesses. How did they work? Which sectors and occupations took greatest advantage of these? Here’s how economists’ tracked the first round for our region. Here’s what we learned from the first rounds of the Payroll Protection Program (PPP) and Extended Unemployment Benefits.
The PPP provides small businesses forgivable loans to cover up to eight weeks of payroll and other costs. Our state’s Department of Employment and Economic Development team analysed the distribution of the first rounds of these loans. From March through the end of June, 4,477 Northeastern Minnesota businesses applied for and received PPP loans in Northeast Minnesota. Of these, 3,889 loans went to businesses with annual sales less than $150,000, a regional infusion $138,112,340. Four of the region’s largest businesses received sums between $5 and $10 million. The region’s largest employing sectors (health care and social assistance, retail trade, and accommodation and food services) accounted for 46.6% of all regional jobs, but received only 34.7% of PPP loans. The construction industry, with only 8.4% of the region’s workers accounted for 25% of all loans.
Did the PPP contribute to larger shares of jobs retained? Yes, Gorecki’s analysis shows, though unevenly. Health care and social assistance accounted for the largest share of regional jobs retained, over 22%. The 515 loans to food service and lodging firms, industries hard-hit by the pandemic. The hospitality sector accounted for 19% of jobs retained following PPP infusions, retail trade for 12%and construction 10%. We don’t yet have analysis on the second half of 2020.
The other substantial pandemic economic initiative is the Federal Pandemic Unemployment Compensation (FPUC) add-on of $600 a week to those receiving unemployment compensation. DEED’s Gorecki examined the FPUC’s impact in the Northeast Region, especially for low-wage workers. He concludes that the extra $600 helped more workers stay at home, lowering their risk of infection and spreading the disease, desirable during the early weeks of pandemic response, when many states, including Minnesota, adopted Stay at Home orders. Gorecki notes that some analysts worry that the FPUC may be creating a disincentive for people to return to work as businesses reopen, quoting research findings that a significant portion of unemployed workers make more from regular unemployment benefits plus the $600 add on than they did in the jobs that they were laid off from. He notes that the National Bureau of Economic Research (NBER) found that the median wage replacement rate for U.S. workers with the $600 add-on was 134%. Thus most workers are receiving UI benefits greater than their pay from their previous jobs, as much as 22% higher.
One welcome finding from the data analysts is that the $600 unemployment addition is even more significant for lower wage workers. By comparison, the median food preparation & serving ($11.61/hr) or sales ($12.55/hr) worker would need hourly increases of approximately $9 and $8.75 respectively, to match the incomes of their unemployed colleagues. (An aside from this author, an increase in the federal minimum wage is woefully overdue, and Minnesota’s should be revisited as well).
Gorecki notes that not all low-wage workers benefit from the FPUC. Those workers deemed essential continued to work, often in conditions placing them at higher risk of contracting the virus. Despite the increased risks, there is no similar program or policy to equitably compensate workers providing essential services, such as keeping our grocery stores and critical retail outlets running and safe or taking care of our loved ones. He cites the case made by economists Patricia Anderson and Phillip Levine that if wages for essential workers who remain in their positions on the front lines are to be equitable, their hazard pay increases should be commensurate.
Carson Gorecki, “You Down with PPP? The Paycheck Protection Program in Northeast Minnesota, August 3, 2020
Patricia M. Anderson and Phillip Levine, “The Unemployed and Essential Low-wage Workers after the Cares Act,” April 6, 2020. https://econofact.org/the-unemployed-and-essential-low-wage-workers-after-the-cares-act
Ann Markusen, professor emerita, directs the University of Minnesota Humphrey School’s Project on Regional and Industrial Economics.