Are Southerners Getting a Federal Bargain or Burden?

Thursday, April 15, 2021

Southern states may receive more federal tax dollars, but they also bear a greater burden of federal regulations. Read more at the Shreveport Times

The Regressive Effects of Regulations in Illinois

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the Illinois economy is associated with the following regressive effects:

  • 194,012 people living in poverty
  • 3 percent higher income inequality
  • 402 fewer businesses annually
  • 5,122 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, Illinois ranks 4 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on Illinois, this snapshot describes each of these regressive effects.

Poverty

The increase in Illinois’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 194,012 (1,509,348 after vs. 1,315,336 before) and an increase in the poverty rate of 1.56 percentage points (12.1 percent after vs. 10.54 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon Illinois increased by 59 percent and is associated with an increase in Illinois’s poverty rate of 14.75 percent. As of 2018, the overall poverty rate in Illinois stood at 12.1 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 10.54 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 194,012 fewer people living in poverty in Illinois in 2018.

Income Inequality

The increase in Illinois’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 3 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon Illinois increased by 59 percent, and that increase is associated with a 3 percent increase in Illinois’s level of income inequality. As of 2015, Illinois was the 10th most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 402 small firms and 5,122 jobs in Illinois.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, Illinois had 251,667 small firms, collectively employing 2,476,958 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, Illinois loses about 402 small firms (0.16 percent of total small firms) and 5,122 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in Illinois and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

Illinois’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, Illinois ranks 4 of 44 states, with 273,989 regulatory restrictions (where a rank of “1” is most regulated). Illinois also ranks 39 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although Illinois cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. Illinois requires a license to work in 40 low-income occupations and requires an average of 249 days of education, training, or apprenticeships to obtain a license. Illinois is the 39th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, Illinois’s administrative law code measured 18,213,395 words in total length in 2020 and contained 273,989 distinct regulatory restrictions. Compared with 43 other states for which data are available, Illinois ranks 4 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in Indiana

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the Indiana economy is associated with the following regressive effects:

  • 164,757 people living in poverty
  • 4.9 percent higher income inequality
  • 170 fewer businesses annually
  • 2,549 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, Indiana ranks 34 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on Indiana, this snapshot describes each of these regressive effects.

Poverty

The increase in Indiana’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 164,757 (844,165 after vs. 679,408 before) and an increase in the poverty rate of 2.54 percentage points (13 percent after vs. 10.46 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon Indiana increased by 97 percent and is associated with an increase in Indiana’s poverty rate of 24.25 percent. As of 2018, the overall poverty rate in Indiana stood at 13 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 10.46 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 164,757 fewer people living in poverty in Indiana in 2018.

Income Inequality

The increase in Indiana’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 4.9 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon Indiana increased by 97 percent, and that increase is associated with a 4.9 percent increase in Indiana’s level of income inequality. As of 2015, Indiana was the 43rd most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 170 small firms and 2,549 jobs in Indiana.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, Indiana had 106,395 small firms, collectively employing 1,232,838 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, Indiana loses about 170 small firms (0.16 percent of total small firms) and 2,549 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in Indiana and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

Indiana’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, Indiana ranks 34 of 44 states, with 91,155 regulatory restrictions (where a rank of “1” is most regulated). Indiana also ranks 44 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although Indiana cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. Indiana requires a license to work in 37 low-income occupations and requires an average of 323 days of education, training, or apprenticeships to obtain a license. Indiana is the 44th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, Indiana’s administrative law code measured 8,160,320 words in total length in 2020 and contained 91,155 distinct regulatory restrictions. Compared with 43 other states for which data are available, Indiana ranks 34 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in Iowa

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the Iowa economy is associated with the following regressive effects:

  • 49,149 people living in poverty
  • 3.4 percent higher income inequality
  • 98 fewer businesses annually
  • 1,344 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, Iowa ranks 13 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on Iowa, this snapshot describes each of these regressive effects.

Poverty

The increase in Iowa’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 49,149 (342,574 after vs. 293,425 before) and an increase in the poverty rate of 1.61 percentage points (11.2 percent after vs. 9.59 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon Iowa increased by 67 percent and is associated with an increase in Iowa’s poverty rate of 16.75 percent. As of 2018, the overall poverty rate in Iowa stood at 11.2 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 9.59 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 49,149 fewer people living in poverty in Iowa in 2018.

Income Inequality

The increase in Iowa’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 3.4 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon Iowa increased by 67 percent, and that increase is associated with a 3.4 percent increase in Iowa’s level of income inequality. As of 2015, Iowa was the 47th most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 98 small firms and 1,344 jobs in Iowa.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, Iowa had 61,235 small firms, collectively employing 649,796 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, Iowa loses about 98 small firms (0.16 percent of total small firms) and 1,344 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in Iowa and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

Iowa’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, Iowa ranks 13 of 44 states, with 160,603 regulatory restrictions (where a rank of “1” is most regulated). Iowa also ranks 12 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although Iowa cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. Iowa requires a license to work in 71 low-income occupations and requires an average of 288 days of education, training, or apprenticeships to obtain a license. Iowa is the 12th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, Iowa’s administrative law code measured 9,816,474 words in total length in 2020 and contained 160,603 distinct regulatory restrictions. Compared with 43 other states for which data are available, Iowa ranks 13 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in Kansas

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the Kansas economy is associated with the following regressive effects:

  • 51,390 people living in poverty
  • 3.6 percent higher income inequality
  • 89 fewer businesses annually
  • 1,251 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, Kansas ranks 38 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on Kansas, this snapshot describes each of these regressive effects.

Poverty

The increase in Kansas’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 51,390 (336,892 after vs. 285,502 before) and an increase in the poverty rate of 1.82 percentage points (11.9 percent after vs. 10.08 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon Kansas increased by 72 percent and is associated with an increase in Kansas’s poverty rate of 18 percent. As of 2018, the overall poverty rate in Kansas stood at 11.9 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 10.08 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 51,390 fewer people living in poverty in Kansas in 2018.

Income Inequality

The increase in Kansas’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 3.6 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon Kansas increased by 72 percent, and that increase is associated with a 3.6 percent increase in Kansas’s level of income inequality. As of 2015, Kansas was the 24th most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 89 small firms and 1,251 jobs in Kansas.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, Kansas had 55,682 small firms, collectively employing 605,147 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, Kansas loses about 89 small firms (0.16 percent of total small firms) and 1,251 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in Kansas and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

Kansas’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, Kansas ranks 38 of 44 states, with 69,925 regulatory restrictions (where a rank of “1” is most regulated). Kansas also ranks 45 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although Kansas cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. Kansas requires a license to work in 35 low-income occupations and requires an average of 200 days of education, training, or apprenticeships to obtain a license. Kansas is the 45th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, Kansas’s administrative law code measured 3,211,823 words in total length in 2020 and contained 69,925 distinct regulatory restrictions. Compared with 43 other states for which data are available, Kansas ranks 38 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in Michigan

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the Michigan economy is associated with the following regressive effects:

  • 170,780 people living in poverty
  • 2.9 percent higher income inequality
  • 273 fewer businesses annually
  • 3,913 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, Michigan ranks 36 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on Michigan, this snapshot describes each of these regressive effects.

Poverty

The increase in Michigan’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 170,780 (1,369,235 after vs. 1,198,455 before) and an increase in the poverty rate of 1.75 percentage points (14 percent after vs. 12.25 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon Michigan increased by 57 percent and is associated with an increase in Michigan’s poverty rate of 14.25 percent. As of 2018, the overall poverty rate in Michigan stood at 14 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 12.25 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 170,780 fewer people living in poverty in Michigan in 2018.

 

Income Inequality

The increase in Michigan’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 2.9 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon Michigan increased by 57 percent, and that increase is associated with a 2.9 percent increase in Michigan’s level of income inequality. As of 2015, Michigan was the 23rd most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 273 small firms and 3,913 jobs in Michigan.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, Michigan had 170,733 small firms, collectively employing 1,892,394 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, Michigan loses about 273 small firms (0.16 percent of total small firms) and 3,913 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in Michigan and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

Michigan’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, Michigan ranks 36 of 44 states, with 76,213 regulatory restrictions (where a rank of “1” is most regulated). Michigan also ranks 30 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although Michigan cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. Michigan requires a license to work in 49 low-income occupations and requires an average of 255 days of education, training, or apprenticeships to obtain a license. Michigan is the 30th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, Michigan’s administrative law code measured 4,364,983 words in total length in 2020 and contained 76,213 distinct regulatory restrictions. Compared with 43 other states for which data are available, Michigan ranks 36 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in Minnesota

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the Minnesota economy is associated with the following regressive effects:

  • 64,774 people living in poverty
  • 2.8 percent higher income inequality
  • 186 fewer businesses annually
  • 2,603 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, Minnesota ranks 28 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on Minnesota, this snapshot describes each of these regressive effects.

Poverty

The increase in Minnesota’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 64,774 (527,445 after vs. 462,671 before) and an increase in the poverty rate of 1.18 percentage points (9.6 percent after vs. 8.42 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon Minnesota increased by 56 percent and is associated with an increase in Minnesota’s poverty rate of 14 percent. As of 2018, the overall poverty rate in Minnesota stood at 9.6 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 8.42 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 64,774 fewer people living in poverty in Minnesota in 2018.

Income Inequality

The increase in Minnesota’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 2.8 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon Minnesota increased by 56 percent, and that increase is associated with a 2.8 percent increase in Minnesota’s level of income inequality. As of 2015, Minnesota was the 29th most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 186 small firms and 2,603 jobs in Minnesota.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, Minnesota had 116,490 small firms, collectively employing 1,259,012 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, Minnesota loses about 186 small firms (0.16 percent of total small firms) and 2,603 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in Minnesota and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

Minnesota’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, Minnesota ranks 28 of 44 states, with 98,067 regulatory restrictions (where a rank of “1” is most regulated). Minnesota also ranks 46 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although Minnesota cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. Minnesota requires a license to work in 34 low-income occupations and requires an average of 300 days of education, training, or apprenticeships to obtain a license. Minnesota is the 46th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, Minnesota’s administrative law code measured 5,696,249 words in total length in 2020 and contained 98,067 distinct regulatory restrictions. Compared with 43 other states for which data are available, Minnesota ranks 28 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in North Dakota

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the North Dakota economy is associated with the following regressive effects:

  • 9,121 people living in poverty
  • 2.7 percent higher income inequality
  • 30 fewer businesses annually
  • 404 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, North Dakota ranks 42 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on North Dakota, this snapshot describes each of these regressive effects.

Poverty

The increase in North Dakota’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 9,121 (77,959 after vs. 68,838 before) and an increase in the poverty rate of 1.24 percentage points (10.6 percent after vs. 9.36 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon North Dakota increased by 53 percent and is associated with an increase in North Dakota’s poverty rate of 13.25 percent. As of 2018, the overall poverty rate in North Dakota stood at 10.6 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 9.36 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 9,121 fewer people living in poverty in North Dakota in 2018.

Income Inequality

The increase in North Dakota’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 2.7 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon North Dakota increased by 53 percent, and that increase is associated with a 2.7 percent increase in North Dakota’s level of income inequality. As of 2015, North Dakota was the 39th most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 30 small firms and 404 jobs in North Dakota.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, North Dakota had 18,885 small firms, collectively employing 195,312 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, North Dakota loses about 30 small firms (0.16 percent of total small firms) and 404 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in North Dakota and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

North Dakota’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, North Dakota ranks 42 of 44 states, with 52,368 regulatory restrictions (where a rank of “1” is most regulated). North Dakota also ranks 23 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although North Dakota cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. North Dakota requires a license to work in 65 low-income occupations and requires an average of 122 days of education, training, or apprenticeships to obtain a license. North Dakota is the 23rd most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, North Dakota’s administrative law code measured 3,707,901 words in total length in 2020 and contained 52,368 distinct regulatory restrictions. Compared with 43 other states for which data are available, North Dakota ranks 42 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in South Dakota

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the South Dakota economy is associated with the following regressive effects:

  • 16,751 people living in poverty
  • 3.6 percent higher income inequality
  • 34 fewer businesses annually
  • 433 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, South Dakota ranks 43 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on South Dakota, this snapshot describes each of these regressive effects.

Poverty

The increase in South Dakota’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 16,751 (109,814 after vs. 93,063 before) and an increase in the poverty rate of 1.97 percentage points (12.9 percent after vs. 10.93 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon South Dakota increased by 72 percent and is associated with an increase in South Dakota’s poverty rate of 18 percent. As of 2018, the overall poverty rate in South Dakota stood at 12.9 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 10.93 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 16,751 fewer people living in poverty in South Dakota in 2018.

Income Inequality

The increase in South Dakota’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 3.6 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon South Dakota increased by 72 percent, and that increase is associated with a 3.6 percent increase in South Dakota’s level of income inequality. As of 2015, South Dakota was the 16th most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 34 small firms and 433 jobs in South Dakota.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry.[x] They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees)[xi] within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, South Dakota had 21,478 small firms, collectively employing 209,403 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, South Dakota loses about 34 small firms (0.16 percent of total small firms) and 433 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in South Dakota and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods. Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

South Dakota’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, South Dakota ranks 43 of 44 states, with 43,521 regulatory restrictions (where a rank of “1” is most regulated). South Dakota also ranks 48 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although South Dakota cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. South Dakota requires a license to work in 32 low-income occupations and requires an average of 355 days of education, training, or apprenticeships to obtain a license. South Dakota is the 48th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, South Dakota’s administrative law code measured 3,380,173 words in total length in 2020 and contained 43,521 distinct regulatory restrictions. Compared with 43 other states for which data are available, South Dakota ranks 43 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

The Regressive Effects of Regulations in Wisconsin

March 16, 2021

Key Findings

The impact of federal regulations from 1997 to 2015 on the Wisconsin economy is associated with the following regressive effects:

  • 85,281 people living in poverty
  • 3.2 percent higher income inequality
  • 170 fewer businesses annually
  • 2,620 lost jobs annually
  • 7.35 percent higher prices

With regard to the volume of state-level regulations, Wisconsin ranks 12 of 44 states for which data are available (where a rank of “1” is most burdensome).

Regulations have unintended consequences. Recent research shows that a greater regulatory burden (as measured by the number of regulatory restrictions—instances of the words and phrases shall, must, may not, prohibited, and required—included in rules and regulations) is associated with increased poverty rates, higher levels of income inequality, reduced entrepreneurship, and increased consumer prices (especially for the products consumed by individuals living in poverty). Focusing specifically on Wisconsin, this snapshot describes each of these regressive effects.

Poverty

The increase in Wisconsin’s regulatory burden from 1997 to 2015 is associated with an increase in the number of people living in poverty by 85,281 (626,748 after vs. 541,467 before) and an increase in the poverty rate of 1.51 percentage points (11.1 percent after vs. 9.59 percent before).

Using the federal regulation and state enterprise (FRASE) index, which “represents the degree of impact federal regulations have on a state’s economy relative to federal regulations’ impact on the national economy,” researchers have found that states with a higher incidence of federal regulations also tend to exhibit higher poverty rates. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with about a 2.5 percent increase in the poverty rate.

From 1997 to 2015 (the period for which FRASE estimates are available), the effective federal regulatory burden upon Wisconsin increased by 63 percent and is associated with an increase in Wisconsin’s poverty rate of 15.75 percent. As of 2018, the overall poverty rate in Wisconsin stood at 11.1 percent. If the increase in the regulatory burden had not occurred, our research suggests that the poverty rate could have been as low as 9.59 percent in 2018. Though this may not seem like a large difference in relative terms, it amounts to 85,281 fewer people living in poverty in Wisconsin in 2018.

Income Inequality

The increase in Wisconsin’s regulatory burden from 1997 to 2015 is associated with an increase in the state’s income inequality by 3.2 percent.

Given the association between rising poverty and federal regulations, it is no surprise that income inequality has also increased. Using the FRASE index, researchers have found that states with a higher incidence of federal regulations also have higher levels of income inequality. Specifically, a 10 percent increase in the effective federal regulatory burden upon a state is associated with an approximate 0.5 percent increase in the state’s Gini coefficient (the most commonly used measure of income inequality).

From 1997 to 2015, the effective federal regulatory burden upon Wisconsin increased by 63 percent, and that increase is associated with a 3.2 percent increase in Wisconsin’s level of income inequality. As of 2015, Wisconsin was the 40th most unequal state in terms of income inequality.

Entrepreneurship

The average annual growth rate of industry-specific federal regulations (measured from 1999 to 2015) is associated with an annual loss of 170 small firms and 2,620 jobs in Wisconsin.

One reason a greater regulatory burden may increase poverty and inequality is that regulation can reduce entrepreneurship. Researchers matched data from the Mercatus Center at George Mason University on industry-level federal regulation (from the RegData dataset) with Census Bureau data on the number of small and large firms and the number of employees per industry. They estimate that a 10 percent increase in the number of regulatory restrictions pertaining to a particular industry is associated with a 0.42 percent reduction in the total number of small firms (that is, with fewer than 500 employees) within that industry and a corresponding 0.55 percent reduction in small firm employment. Moreover, the researchers find that consecutive years of rising regulatory burden on an industry have a compounding effect, whereby the negative effects of regulation are amplified if preceded by above-average regulation growth.

In 2017, Wisconsin had 106,260 small firms, collectively employing 1,267,087 workers. Between 1999 and 2015, industry-level federal regulatory restrictions increased, on average, by 3.78 percent per year. The results of the research mentioned earlier suggest that in an average year, if industry-level federal regulations uniformly increase by 3.78 percent, Wisconsin loses about 170 small firms (0.16 percent of total small firms) and 2,620 jobs (0.21 percent of small firm employment).

Consumer Prices

The increase in industry-specific federal regulations (measured from 1999 to 2015) is associated with a 7.35 percent increase in consumer prices in Wisconsin and the rest of the nation.

A 2018 study combines consumer expenditure and pricing data from the Bureau of Labor Statistics with regulation data from RegData to determine the impact of industry-level regulation on the prices of consumer goods, Given that regulations drive up compliance costs, it is not surprising that the researchers find that a 10 percent increase in federal regulations is associated with a 0.9 percent increase in consumer prices. The study also finds that the poorest households spend an outsized share of their income on the goods that are most regulated. Consequently, between 1999 and 2015, the average annual increase in prices for the households in the lowest income group was 2.46 percent, significantly more than the 2.08 percent increase in average prices experienced by households in the top income group.

Over the same period, industry-level federal regulations increased by an average of 3.78 percent per year, which, based on the research mentioned earlier, is associated with 0.34 percent higher prices nationally. To put this into perspective, the annual rate of inflation from 1999 to 2015 in the United States averaged 2.19 percent, but it could have been as little as 1.85 percent per annum if there had been no growth in regulation. Whereas this may seem like a small difference in the inflation rate, the effects compound over time.

Wisconsin’s State-Level Regulations

In terms of the number of state-level regulatory restrictions, Wisconsin ranks 12 of 44 states, with 161,549 regulatory restrictions (where a rank of “1” is most regulated). Wisconsin also ranks 36 in the nation in terms of occupational licensure burden (where a rank of “1” is most burdensome).

Although Wisconsin cannot unilaterally reduce federal regulatory burdens impacting the state, it can reduce homegrown red tape. An example of state-level red tape is occupational licensure, which can impose a costly barrier to entering a profession. Wisconsin requires a license to work in 42 low-income occupations and requires an average of 214 days of education, training, or apprenticeships to obtain a license. Wisconsin is the 36th most regulated state in terms of the breadth and burden of occupational licensing, according to the Institute for Justice. Using a more comprehensive measure of regulation, Wisconsin’s administrative law code measured 12,250,243 words in total length in 2020 and contained 161,549 distinct regulatory restrictions. Compared with 43 other states for which data are available, Wisconsin ranks 12 (California ranks 1, as the state with the most regulatory restrictions, and Idaho ranks 44, as the state with the fewest regulatory restrictions).

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