$7647 per employee = cost of regulations

Matt Bandyk summarizes recent SBA analysis of the job wedge of regulation:

How would you spend $7,647? That's how much the average business in this country with under 20 employees loses a year for each of its employees because of federal regulations. Thomas Sullivan, the chief counsel for advocacy at the Small Business Administration, testified yesterday before the House Committee on Small Business about ways his office is trying to reduce the $1.1 trillion burden that federal regulations place on businesses. Sullivan also noted that this burden falls disproportionately on smaller businesses. In 2004, the cost of regulations for businesses with more than 500 employees was $5,282 per employee.

Comments

[a student of economics]

I'm sure most regulations are costly (and that many have benefits), but the headline number appears have no credible support.

Mr. Sullivan's figure appears to be based on a study by Mark Crain done for the SBA, available here:
http://www.sba.gov/advo/research/rs264tot.pdf

If you read it, you find that the bulk of the estimate is extrapolated from a very simple regression with 24 data points that attempts to predict GDP as function of a "regulation index", education and a few other factors. (See table 2) I have to say that this regression would almost surely be rejected as unreliable if it were submitted to an academic journal. For instance, education is estimated to have a negative and insignificant effect on GDP levels - that contradicts virtually all serious research.

Highlighting a cost number for regulations based on this kind of unreliable, unrefereed, advocacy "research" doesn't really do much to advance our understanding of growth. In fact, it probably just muddies the waters and makes it harder for real research to be heard.

[Jared]

Staying out of the debate on the accuracy of the data, would the reduced fees for large businesses just be another example of how large businesses take advantage of economies of scale?

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