Cumulative Effect of Three Major Regulations on Targeted Industry: 20% Less Jobs

By Barbara Hollingsworth | November 18, 2013 | 6:05pm EST

 

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(CNSNews.com) – The cumulative effect of three “economically significant government regulations” is a 20 percent reduction in employment in the targeted industry, according to a new study by the American Action Forum (AAF).

“Economically significant” regulations are defined by federal agencies as those having a net annual effect on the U.S. economy of $100 million or more.

Unlike past studies, which tended to focus on how individual regulations affected specific industries or particular geographic areas, “we looked at the cumulative effects of many regulations over time,” Sam Batkins, AAF’s director of regulatory policy and author of the study, told CNSNews.com. (See AAF research regulations and jobs.pdf)

“If an individual industry had one regulation, the effect on employment was negligible (-4.06%),” he said. “If there were two regulations, the drop was slightly more (-6.85%). But if there were three, the drop was statistically significant (-19.63%).”

Eight major regulations were analyzed by AAF, such as those governing higher fuel economy standards, electronic hospital records, and lead paint removal. Taken together, the eight regulations cost American companies $12.2 billion in compliance costs between 2006 and 2010, with three million hours devoted to just filling out the required paperwork.

But they also cost thousands of workers in the affected industries their jobs, compared to industries that did not face similar regulatory restrictions.

“After three significant rules, an industry with 591,000 employees could lose 116,000 jobs” - or one fifth of its workforce - due in part to burdensome compliance costs, according to the study, which used employment data from the Bureau of Labor Statistics controlled for macroeconomic forces, such as the Great Recession and the industry- chained Consumer Price Index.

Not all regulated industries studied suffered employment declines. For example, “the health care industry was largely immune from the Great Recession and two significant regulations,” the study noted.  But overall, researchers discovered, industries with three significant regulatory burdens “suffered the most profound job losses.”

“It was very surprising to see the 20 percent drop,” Batkins added. “For this study, three was the tipping point. But the trend is what you’d expect if you looked at the costs [of compliance], which are in the billions of dollars, and the fact that all of these regulations were done in a relatively short period of time.”

The study looked at the impact on employment of the following regulations:

  • 2012-2016 CAFÉ Standards ($8.8 billion in annual compliance cost);
  • Electronic Hospital Transactions ($1.billion);
  • Control of Emissions from SI [spark ignition] Engines ($475 million);
  • Lead Paint Repair and Renovation ($443 million);
  • Lead Amendment Recordkeeping ($342 million);
  • Revisions to HIPAA [Health Insurance Portability and Accountability Act] Code Sets ($297 million);
  • Renewable Fuels Program ($121 million); and
  • Control of HAPS [hazardous air pollutants] from Mobile Sources ($69 million).

“Many industries were impacted by multiple regulations, some by up to three rules within the four-year span,” the study noted, particularly those involved in automotive emissions control and repair.

“Controlling emissions from spark ignition (SI) engines costs small manufacturers 3 percent of revenue, in other words, regulatory taxes. By comparison, the effects of the SI regulation are actually greater than the destructive 2.3 percent medical device tax, which is part of the Affordable Care Act.” That tax is expected to cost the medical device industry between 14,500 and 47,100 jobs, or 10 percent of its total employment.

“After complying with more than $12 billion in new annual regulatory burdens during a five-year period, it is not too surprising that some of the affected industries shed jobs,” the AAF study pointed out.

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