New research shows regulatory growth increases operating costs for businesses

Regulations are undoubtedly an essential part of doing business. They can help protect customers, businesses, and property. However, regulations also impose costs on individuals and businesses. Businesses generally face increased operating costs if they have to change their operations to adhere to existing regulations.

Unlike taxes, regulations are harder to quantify. Numerous efforts, however, are underway to estimate the effect that a growing regulatory burden has on business. The most recent of these efforts is a new study from the Mercatus Center at George Mason University, which aims to

investigate the effect of recent regulatory growth on operating costs per unit of output across a variety of US industries.

Authors of the study, Tyler Richards and Richard Fullenbaum, found evidence suggesting that the

average level of annual regulatory growth (3.55 percent) increases operating costs per unit of output by 3.3 percentage points per year relative to a baseline of no regulatory growth.

Additionally, the effects authors add that since regulations accelerate the growth rate of operating costs, the effect of increased regulations compounds over time.

What would reducing regulations do?

Since regulations increase costs for businesses, it goes without saying that eliminating some regulations should result in the opposite. Indeed the authors estimate that holding everything else constant, reducing the total volume of federal regulations to 1998 levels would cut operating costs nearly in half. This would increase economic growth even if technological innovation remains constant.

As legislators are looking for ways to help ailing businesses that have been hurt by the COVID-19 pandemic and closures associated with the pandemic, regulatory reform should be a no brainer.