Economists study accumulative effects of regulations

Phil Castle, The Business Times

Two economists who’ve long studied the cost of federal regulations believe it’s important to consider not only the effects of one regulation, but the accumulative effect of the thousands of regulations promulgated by the government.

That effect is massive and growing, said Nicole Crain and Mark Crain. Moreover, small manufacturers and other small businesses shoulder a disproportionally heavier burden in complying with regulations. “It’s tough to be a small manufacturer. That’s something that’s very clear,” Nicole Crain said.

The Crains, both economists at Lafayette College in Easton, Penn., recently completed a study for the National Association of Manufacturers that estimated the total cost of federal regulations in 2012 at more than $2 trillion.

The Crains conducted a similar study for the U.S. Small Business Administration Office of Advocacy in 2010 that estimated total regulatory costs then at $1.75 trillion.

Regulatory costs have been rising, the Crains said, because of the growing number of regulations promulgated in recent years and accumulative effects of new regulations and those already on the books. At 12 percent of gross domestic product, those costs have become “huge,” Mark Crain said.

In the NAM study, the Crains also looked at the costs of federal regulations across various industry sectors and different sizes of operations. They said they found that manufacturers pay on average $19,564 per employee annually in regulatory costs — more than double the cost of $9,991 per employee for all United States businesses. Small manufacturers with fewer than 50 employees incur regulatory costs of $34,671 a year, the Crains said.

Smaller firms pay more in regulatory costs per employee in part because the fixed cost is spread out among fewer employees, Nicole Crain said.

A survey conducted as part of the study found that if they didn’t have to spend the money on regulatory costs,

63 percent of business owners and managers would invest in their operations. Another 22 percent said they’d spend the money on employee initiatives, including higher wages.

The Crains said a number of reforms could help curb the rising cost of regulations, among them periodic reviews of whether regulations are still necessary, required analysis of the costs and benefits of proposed regulations and more involvement from businesses in determining which regulations work and which don’t.