Regulations Do Not Hinder U.S. Job Market, Paper Finds (4/20)
April 20, 2011
Regulations designed to protect consumers, workers, and the environment do not have a negative impact on the job market and, in some cases, actually spur job creation, according to new research from the Economic Policy Institute (EPI).
The EPI paper, Regulation, Employment, and the Economy: Fears of job loss are overblown, shows that recent criticism surrounding regulations' impact on jobs is misguided and not reflective of economic data. During the 112th Congress, lawmakers and industry lobbyists have made targeting federal rules a high priority and have frequently characterized regulations as "job killers." However, economic studies provide no evidence that regulation impedes job creation or leads to significant unemployment.
Most of the studies examining the economy-wide impacts of regulations have focused on the impact of environmental regulations. These studies "have consistently failed to find significant negative employment effects," according to the paper.
Studies examining the impacts of specific regulations on specific industries show that some regulations have a net positive effect on some industries and have cost jobs in other industries. Overall, "the preponderance of studies of various industries suggests that regulations have had a close to neutral effect or a moderately positive effect on employment levels," according to the EPI paper.
Since 2007, government data on "extended mass job layoffs" indicate that "only a very tiny fraction of such job layoffs (about 0.3 percent of the 1.5 million such layoffs each year) were attributed by employers to government regulations/intervention," the paper says. "Similarly, a study that reviewed job layoffs due to environmental regulations in previous decades found that such regulations caused much less than one percent of extended mass layoffs." By comparison, extreme weather-related events have caused more extended mass job layoffs than government regulation, according to the data.
The paper's authors, John Irons and Isaac Shapiro, also examined the effects of deregulation on the job market. "In particular, a wave of deregulation and the belief that financial markets can 'self-regulate' played a major role in the collapse of the housing bubble and the ensuing financial and economic crisis. Eight million jobs were lost in the Great Recession."
The paper also finds that under-regulation played a role in the BP Deepwater Horizon oil spill disaster and its aftermath, which, in addition to its environmental and human toll, continues to have a significant negative impact on the Gulf region's economy and job market.
The EPI paper, released April 12, is timely, as government regulation has become a hot-button issue in Washington. Lawmakers are increasingly complaining about the Obama administration's regulatory record, especially at health and environmental agencies such as the U.S. Environmental Protection Agency (EPA). Several bills have been introduced that would alter the regulatory process in order to make it more difficult for agencies to set public protection standards. House committees have held dozens of hearings – with titles such as "Regulatory Impediments to Job Creation" and "EPA's Greenhouse Gas Regulations and Their Effect on American Jobs" – focusing on the regulatory process or individual regulations, often placing them in a jobs or economic context. Opponents of regulation rarely discuss the benefits of public protections, despite the fact that studies show that regulation can help the economy in addition to saving lives, expanding public welfare and opportunity, and preserving the environment.
The EPI paper examines those studies, including two recent reports, one by the White House Office of Management and Budget (OMB) and the other by the EPA, both of which show that the economic benefits of regulation far outweigh the costs of compliance. "[R]egulations have generally and consistently struck a reasonable balance, with their benefits to health, safety, and well-being far exceeding their costs," the paper says.
Few studies on the economics of regulations show them hurting the economy overall, and those studies that do exist can suffer from methodological shortcomings. One such study, prepared for the Small Business Administration (SBA) Office of Advocacy, says that regulations' annual cost to the economy is $1.75 trillion. However, the study is flawed for several reasons, according to the EPI paper. For example, the SBA study does not take into account the benefits of regulation, and the study's results have not yet been replicated, among other problems.
The EPI paper also finds that "debates over regulations have often relied on exaggerated estimates of the compliance costs they will produce." For instance, several studies by Resources for the Future concluded that the government's cost estimates tended to be overstated. In cases where cost estimates were found to be higher than estimates of actual compliance costs, they were at least 25 percent higher than the estimates supplied for the proposed rule, according to the EPI paper.
"Overall, the picture that emerges from this review is a positive one," the EPI paper concludes. "For decades, regulations have generally and consistently struck a reasonable balance, with their benefits to health, safety, and well-being far exceeding their costs."