The price of regulation — Anti-stimulus

Iain Murray

On tax day, it's good to remember the hidden costs we pay to the Federal government. Most important is the cost of regulation, so it's great that today's the day that CEI's Wayne Crews releases Ten Thousand Commandments, his annual survey of regulatory growth. According to Wayne, the annual cost to the US economy of regulation is now $1.75 trillion. (Ivan Osorio will have more details on the report here soon).

However, just like people say that the cost of taxation falls mostly on people who can afford it, there will doubtless be those who will say, “So what? These burdens fall on big companies, who can afford it!” Just as with tax, that‘s not the case. When you work out how much these rules cost businesses, you also find that small firms bear the biggest relative burden. According to the Crews methodology, the regulatory costs per employee are $7,755 for large firms (those with 500 employees or more), $7,454 for medium-sized enterprises (20 to 499 employees) and $10,585 for small businesses (fewer than 20 employees).

Indeed, regulation is a real barrier to a firm‘s growth. Wayne put together the following list of regulations that a company needs to comply with as it grows in size. Each of them comes with costs – hiring a compliance manager, legal advice and so on.

FEDERAL WORKPLACE REGULATIONS IMPOSED ON GROWING BUSINESSES[1]

ONE EMPLOYEE

Fair Labor Standards Act (overtime and minimum wage [27% min. wage increase since 1990])

Social Security matching and deposits

Medicare, FICA

Military Selective Service Act (90 days leave for reservists; rehire discharged veterans)

Equal Pay Act (no sex discrimination in wages)

Immigration Reform Act (eligibility must be documented)

Federal Unemployment Tax Act (unemployment compensation)

Employee Retirement Income Security Act (standards for pension and benefit plans)

Occupational Safety and Health Act

Polygraph Protection Act

4 EMPLOYEES: ALL THE ABOVE, PLUS

Immigration Reform Act (no discrimination with regard to national origin, citizenship, or intention to obtain citizenship)

15 EMPLOYEES: ALL THE ABOVE, PLUS

Civil Rights Act Title VII (no discrimination with regard to race, color, origin, religion, or sex; pregnancy-related protections; recordkeeping)

Americans with Disabilities Act (no discrimination, “reasonable accommodations”)

20 EMPLOYEES: ALL THE ABOVE, PLUS

Age Discrimination Act (no discrimination on the basis of age against those 40 and older)

Older Worker Benefit Protection Act (benefits for older workers must be commensurate with younger workers)

COBRA (continuation of medical benefits for up to 18 months upon termination)

25 EMPLOYEES: ALL THE ABOVE, PLUS

Health Maintenance Organization Act (HMO Option required)

Veterans‘ Reemployment Act (reemployment for persons returning from active duty, reserve, or Nat‘l Guard)

50 EMPLOYEES: ALL THE ABOVE, PLUS

Family and Medical Leave Act (12 weeks unpaid leave or care for newborn or ill family member)

100 EMPLOYEES: ALL THE ABOVE, PLUS

WARN Act (60-days written plant closing notice) -Civil Rights Act (annual EEO-1 form)

As you can see, that‘s more than negligible requirements, even for a one-employee start-up. Wayne is sure that the list is incomplete. It also doesn‘t address industry specific rules or any of the new regulations that have started to come into place from financial reform or Obamacare. Nevertheless, it should give you some idea of how the paperwork builds up (many of the requirements have to be complied with for each individual employee, remember).

[1] Assumes non-union, non-government contractor, with interstate operations and a basic employee benefits package. Includes general workforce-related regulation only; Omitted are categories such as environmental and consumer product safety regulations, and regulations applying to specific types of businesses such as mining, farming, trucking or financial firms.

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