Equity markets may not see it, but July is likely to see a resumption in layoffs stemming from the COVID-19 induced recession, as Payroll Protection Program (PPP) funds run out.PPP funds only supplied businesses with eight weeks of payroll funding, and many firms put people back on payroll even if they did not actually recall them to work.Not only will the end of PPP-funded “re-payrolling” lead to “re-terminations” of employees in July, but if Congress does nothing, the federal unemployment insurance benefit supplement will end July 31st and send the economy into a further spiral.Dan Alpert is an adjunct professor at Cornell Law School and a founding managing partner of the New York investment bank Westwood Capital LLC.This is an opinion column. The thoughts expressed are those of the author.Visit Business Insider’s homepage for more stories.
The coronavirus relief package passed by Congress in March, known as the CARES Act, did a substantial amount of good for the economy. In particular, the aid funneled to the emergency unemployment benefit supplements to households and forgivable PPP loans to small and medium-sized businesses to enable them to put their employees back on payrolls helped stabilize many parts of the US economy.But given the duration of the economic lockdown connected with the COVID-19 crisis, we are about to experience a whipsaw impact on employment that is an unfortunate consequence of the CARES Act’s structure, is seemingly unanticipated by US equity markets, and will require federal policymakers to proceed far more aggressively in order to avoid the US slipping into a true depression.The PPP surge is adding to payrolls — for nowBefore we get into this coming second wave of joblessness, let’s address the sources of the recent, relative good news about the labor market: the PPP “re-payrolling” wave.As I mentioned, many companies have in recent weeks “re-payrolled” workers in order to qualify for loan forgiveness under the PPP program. But when the PPP money runs out, mostly at the end of this month, many businesses that put their employees back on payroll will again be forced to lay off those workers. There are three reasons for this, the first two economic, the third structural:
Many businesses will simply fail. A tidal wave of bankruptcies has already begun to roll in, and its crest is anticipated to be perhaps just 30 days to 60 days away as companies run out of the PPP and other cash that has been sustaining them and defaults to landlords and lenders render them insolvent.Some businesses will simply not be able to return to their scale of prior operations in the post-lockdown. The combination of enforced social distancing and an overall collapse in demand will not support even the “re-payrolling” that the PPP has produced.Finally, the regulations surrounding the PPP essentially forced employers to initially rush out 75% of the loan amounts they received to put their entire pre-crisis body of workers back on payroll for eight weeks, in order to qualify for loan forgiveness. While that requirement was relaxed two weeks ago the vast majority of that cash will be out the door to employees by the
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