The cost of regulatory compliance in the U.S.

Displeased black man looking at camera while being on public anti-racism demonstrations. Crow of people is in the background.
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We quantify firms’ compliance costs of regulation from 2002 to 2014 in terms of their labor input expenditure to comply with government rules, a primary component of regulatory compliance spending for large portions of the U.S. economy. Detailed establishment-level occupation data, in combination with occupation-specific task information, allow us to recover the share of an establishment’s wage bill owing to employees engaged in regulatory compliance. Regulatory costs account on average for 1.34 percent of the total wage bill of a firm, but vary substantially across and within industries, and have increased over time. We investigate the returns to scale in regulatory compliance and find an inverted-U shape, with the percentage regulatory spending peaking for an establishment size of around 500 employees. Finally, we develop an instrumental variable methodology for decoupling the role of regulatory requirements from that of enforcement in driving firms’ compliance costs.

That is from a new NBER working paper from Francesco Trebbi and Miao Ben Zhang.  Keep in mind those are the costs of compliance narrowly interpreted, not the costs of regulation overall.  And they do not consider the longer-term innovation costs from “having to turn the firm over to the lawyers.”

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