More Regulations Mean Less Productivity
September 8, 2014
What level of impact do regulations have on businesses? According to George Mason University professor Antony Davies, a lot. In a report for the Mercatus Center, Davies explains that productivity in America's least regulated industries grew twice as fast as in the most regulated industries from 1997 through 2010.
When businesses are regulated, it forces producers to change their processes and production levels. Additionally, competition in a regulated market generally declines, because the addition of new regulations creates barriers that keep new firms out of the market. Davies compared productivity data from the Bureau of Labor Statistics with federal regulations issued from 1997 to 2010. According to his calculations:
- Output per worker in the least regulated industries increased 63 percent during the period, while output in the most regulated firms increased just 33 percent.
- Output per hour increased 64 percent in the least regulated firms, while it only increased 34 percent in the most regulated firms.
- Unit labor costs (the costs of labor for each product being produced) dropped 4 percent in the least regulated firms during the thirteen-year period, while labor costs per unit increased 20 percent among the most regulated firms.
The trend identified by Davies indicates that regulations have a significant impact on industry productivity.
Source: Antony Davies, "More-Regulated Industries Experience Lower Productivity Growth," Mercatus Center, August 29, 2014.
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