December, 2001

Compliance Costs of Federal Workplace Regulations: Survey Results for U.S. Manufacturers

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In 2000 U.S. manufacturers spent an average of $2.2 million per firm to comply with federal workplace regulations, or roughly $1,700 per employee. The costs of complying with workplace regulations equaled 1.6 percent of gross receipts in the typical manufacturer. To place this burden in perspective, the impact of federal workplace regulations on employment, pricing, and output decisions is roughly equivalent to a 1.6 percent excise tax on products manufactured in the U.S. This regulatory burden hinders the international competitiveness of U.S. manufactured products, and constrains the demand for workers in U.S. facilities. As an additional benchmark for comparison, the cost of workplace regulations exceeds by roughly six percent the amount U.S. firms typically spend on retirement income benefits (excluding Social Security) for their employees.

These estimates of the compliance costs of workplace regulations are based on a detailed survey of 100 U.S. manufacturers conducted between June and August of 2001. The survey covers twenty-five statutory acts and executive orders that encompass all significant workplace regulations promulgated by the federal government.

An extrapolation of these survey results to the entire manufacturing sector indicates that workplace regulations cost that sector about $32 billion in 2000. This estimate includes both recurring and one-time compliance costs. When one-time expenses such as legal settlements and capital expenditures are excluded, the estimated compliance cost was about $28 billion in 2000. These findings suggest that workplace regulations exceed by at least 75 percent the cost estimates in previous academic and government studies. The survey provides new information about the distribution of the burden of federal workplace regulations. For example, the burden falls disproportionately on small firms, those employing less than 100 workers. The total compliance costs in small firms amounts to about $2,500 per employee, which is 68 percent higher than the cost per employee in large firms, those with 500 or more workers.

The survey breaks down the costs of workplace regulations into six broad categories. The two most costly are regulations related to worker health and safety, which account for about one-third of the compliance costs, and regulations related to employee benefits, which account for about one-fourth of the costs. The survey also identifies the most burdensome regulations within each of the six categories. For example, among "Civil Rights" regulations, the Americans with Disabilities Act is the most costly; among "Labor Standards" regulations, the Fair Labor Standards Act is the most costly.

Finally, the survey examines the incidence of compliance costs within manufacturing firms. For large and mid-size manufactures, the largest share of compliance costs are related to traditional human resource functions. For small manufacturers, capital expenditures account for the largest share of compliance costs.