The Role Regulations Might Play In Slowing Economic Growth

See What’s Killing Jobs and Stalling the Economy by Marie-Joseé Kravis in the WSJ. She is a senior fellow at the Hudson Institute. Excerpts:

"here has been a steady decline in business formation while the rate of business deaths has been more or less constant. Business deaths outnumber births for the first time since measurement of these indicators began."

"the increasing concentration of new business formation in a smaller number of U.S. counties. The findings show that 20 counties account for half of new businesses and that most counties had fewer business establishments in 2014 than in 2010. Even accounting for so-called dynamic counties, the total number of firms in the U.S. remains lower than it was in 2004."

"the 1990 recovery registered a net increase of over 420,000 business establishments, or a 6.7% increase. The numbers for the 2000 recovery were 400,000 and 5.6%. Since 2010, the number of new business establishments has grown by only 166,000 or 2.3%."

"Many studies have also attributed the slow rate of business formation to the regulatory fervor of the past decade. Some point to the deadening effect of the Dodd-Frank law, which is 23 times longer than the Glass-Steagall Act passed in response to the 1929 Depression. One part of Dodd-Frank, the so-called Volcker rule pertaining to bank investments, has 1,420 subsections. Then there is the Affordable Care Act.

It is not clear to what degree these laws affect business formation, but in a 2010 report for the Office of Advocacy of the U.S. Small Business Administration, researchers at Lafayette University found that the per employee cost of federal regulatory compliance was $10,585 for businesses with 19 or fewer employees, compared with $7,755 for companies of 500 employees or more."

"State and local regulators have also hampered new business initiatives, notably through the growth of occupational licensing. In 1950, 5% of workers required a license or certificate. Today that number is close to 30%. Fortunetellers, party planners, florists, shampoo assistants, cosmetologists, manicurists, beekeepers, librarians and many others have joined the ranks of licensed workers."

"licensing requirements vary substantially by states, irrespective of political leadership. Ohio imposes licenses on 33.3% of workers; in Florida it’s 28.7%; in California, 20.7%; and in Nevada, 30.7%. Sixty occupations are regulated in some way in all 50 states, with 1,110 occupations regulated in at least one state."

"Historically, young firms have been dynamic job creators, but they now account for a smaller share of new hires, down from about 38% in the late 1990s to roughly 33% today, according to the Kauffman Foundation."