Regulations protect jobs, and it’s a problem

In most right-of-center circles — and even around pro-business progressives — it’s hard to find many people with something good to say about the mass of written-in-Washington regulations touching nearly every aspect of life and every part of the economy. President Trump frequently rails against “job-destroying regulations” and has promised vast rollbacks of the regulatory state. A Google search for the phrases “job destroying-” and “job killing-” regulation turns up the names of nearly every prominent Republican in Washington.

While estimates vary — the National Association of Manufactures says that the regulatory tab is over 20 percent of the average payroll and the Congressional Research Service gives credence to estimates ranging from $68 billion to over $2 trillion — there’s no doubt that America’s ever-growing regulatory state has vast expenses. But, while politicians who want to cut this expense are right to do so, they are wrong to think that they’ll save any existing jobs. In fact, regulations tend to protect existing jobs — and that’s a problem.

{mosads}The facts are pretty clear. Employers report that less than a quarter of one percent of layoffs involving more than fifty employees happen because new government regulations. A major study from the think tank Resources for the Future likewise found that, in polluting industries that might be expected to lose jobs from new environmental regulations, the changes were “insignificant.” And the list can go on. The handful of regulations that do directly destroy existing jobs often target industries like telemarketing and auto-title lending that are vastly unpopular or are things like clean water laws that have benefits vastly in excess of their costs.

Heavily regulated industries tend to have very stable employment. It’s not a coincidence that the two largest economic sectors that have the most government involvement and heaviest regulation — education and healthcare — are also the two most stable. In fact, the super-sector that includes both has never had a downturn in overall employment since measurement began using current methodologies in the 1970s. And examples exist in other sectors, too. The heavily regulated airlines of 1920s through 1970s were more-or-less assured profitability and had ever-growing workforces. The airline deregulation begun under President Carter changed things. While the traveling public saw real-dollar airfares at less than half of their previous levels, more flights, and better airports, the large airlines all spent time in bankruptcy and, today, provide more flights with far fewer employees. Airline deregulation probably contributed more to industries like hotels and restaurants which benefited from increased travel rather than the airlines or airline stockholders. 

In fact, increased economic regulation over the past few decades correlates strongly with the growth of big business. Data from the Bureau of Labor Statistics makes it clear that large firms (employing more than 500 people) are employing a greater percentage of the workforce than ever before, while small firms are employing fewer and self-employment is becoming decidedly less common. The average tenure at the same job has also grown steadily as well. Larger firms and people in existing jobs are much more likely than scrappy startups to be able to pay the excess costs imposed by regulations. They also can lobby regulators to impose rules that make it harder for other companies to enter the market.

The jobs “lost” to regulations, in fact, are almost all those that entrepreneurs would create in a more wide-open economy; they aren’t jobs anyone has right now. Significant periods of economic growth have happened when new technologies and tastes and cultural trends have disrupted existing industries. The growth of manufacturing, services and the information economy destroyed well over 90 percent of all farming jobs that existed in the 18th century. Computers have eliminated millions of jobs once held by people working in fields ranging from switchboard operators to pool typists. And so forth.

Regulations are a problem worth tackling because they almost always favor industries, people and corporations that are already successful. Repealing burdensome regulations does almost certainly create new jobs, but it won’t always do so in the industry that’s the supposed beneficiary of the deregulatory action and, in fact, it may be hard to forecast where the new jobs will appear. Regulations, in short, are often problematic not because they destroy existing jobs — they don’t — but because they hamper creativity. 

Eli Lehrer (@EliLehrerDC) is the president of the R Street Institute, a nonprofit group dedicated to promoting limited government.