Regulating Away Competition: The Effect of Regulation on Entrepreneurship and Employment

Industries with numerous regulations had fewer new start-up companies and slower employment growth rates from 1998-2011. Smaller, new businesses may not be able to overcome regulation costs resulting in less competition with larger more established businesses who can afford the required compliance costs. Increased regulation correlates with slow job growth and the declining rate of new start-up businesses.

– Increase in the intensity of regulation by 10 percent resulted in a 0.5 percent decrease in the number of new businesses.
– While there was no statistically significant effect on the closing of businesses as related to increased regulation a 10 percent regulation increase was related to a 0.9 percent decrease in new hiring, and specifically a 0.5 percent decrease in hiring among small businesses.

The tradeoff between regulation benefits and its negative effect of business creation and economic growth is significant. Federal regulations should be carefully considered since the unintended consequences are likely to be a negative impact on U.S. economic growth.

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