In the American Action Forum’s (AAF) previous study, “Cumulative Impact of Regulation and Employment,” we examined the employment impact of significant regulations that also affect small entities. In this study, AAF examined how the largest regulations ($1 billion or greater) affect employment. We found the cumulative impact of five or more billion-dollar regulations on an industry reduces employment by more than 54 percent. In addition, average pay for employees still working declines by more than 12 percent after five or more billion-dollar rules. These results are far more striking than our previous study, which found three significant regulations could reduce industry employment by approximately 20 percent. 

Methodology

AAF replicated the methodology from its previous study. Instead of using “economically significant” rules that also affect small entities, however, we examined the most recent Office of Information and Regulatory Affairs Draft Report to Congress, which listed all 19 rules with an annual cost of $1 billion or greater. The following table presents these billion-dollar rules.

_{*In 2012 Dollars}

The above table represents 17 of the 19 billion-dollar rules implemented from 2003 to 2012. AAF excluded the “Clean Air Fine Particle Implementation Rule” and the 2008 Ozone Rule because of data collection issues. For example, we omitted the “Fine Particle” rule because it listed only state and local industries. In adhering to our previous methodology, AAF focused only on the effect of regulation on private-sector employment.

Although the most expensive regulations are the product of EPA rules, the sample spans five Cabinet agencies. EPA has imposed seven billion-dollar regulations, followed by the Department of Transportation (six), the Department of Energy (two), and one each from Health and Human Services and the Department of Labor.

From these 17 regulations, the accompanying regulatory impact analyses listed the following 44 industries as most affected. This sample of industries represents 14.1 percent of total private-sector employment. They are presented below with their North American Industry Classification System (NAICS) codes for reference.

As in “Cumulative Impact of Regulation and Employment,” AAF employed industry-level data from the Bureau of Labor Statistics’ Current Employment Statistics and used average annual employment, average total annual payroll, and average pay per employee in the 44 industries listed for each year from 2002 to 2012. While the previous paper studied all the industries required to comply with the regulations (as listed in the regulatory text), AAF could not use an identical methodology in this study because there were cases where one regulation affected an industry and another regulation affected a specific subsector of that same industry. If we were to include both the industry and its subsector as separate observations, it would skew the analysis because we would essentially count the same industry multiple times.

AAF resolved this issue by consolidating the broader industry regulations into more granular subsectors. Specifically, AAF assumes that all rules that apply to broad industries (shorter NAICS codes) also apply to their subsectors (longer NAICS codes). Thus, for instances in which a broader industry and one of its subsectors were affected by separate regulations, AAF dropped the broader industry from the data set and added its regulation to the subsector. For example, the “Ejection Mitigation” regulation listed “Motor Vehicle Manufacturing” as an affected industry. During AAF’s consolidation, we dropped “Motor Vehicle Manufacturing” and applied this rule to automobile and light truck manufacturing, the more granular subsector.

To examine the cumulative effect of several billion-dollar regulations, this analysis estimates the change in industry employment, total industry payroll, and payroll per employee resulting from multiple significant new regulations. In particular, AAF performed a fixed effects regression to estimate the effect of an industry receiving one, two, three, four, or five or more new billion-dollar regulations on the log of employment, log of total payroll, and log of payroll per employee. To account for macroeconomic forces during the period, such as the loss in employment due to the Great Recession, AAF controlled for year. In addition, to account for changes in prices during that time, AAF controlled for industry chained Consumer Price Index (CPI).

Findings

AAF found that multiple large business regulations are cumulatively detrimental to industry employment, total industry payroll, and average pay per employee.

Employment