Did you know that professional, scientific, and technical services (a broad category that includes legal, payroll, engineering, and advertising services amongst others) is one of Missouri’s largest and most federally regulated industries? There are tens of thousands of federal regulations for this industry, but they don’t just affect Missourians that work in this industry. Regulations have unintended consequences that impact us all.
I’ve previously written about the Mercatus Center’s State RegData project, which calculates how many times each state tells its citizens what they can and cannot do. Using a similar program, researchers examined the impact that federal regulations have on individual states using the federal regulation and state enterprise (FRASE) index. Though federal regulations apply to all states, each state’s economy is made of different industries, so regulations targeted at specific industries will affect states differently.
The authors find that “[the] impact of federal regulations from 1997 to 2015 on the Missouri economy is associated with the following regressive effects:
- 93,411 people living in poverty
- 2.7 percent higher income inequality
- 180 fewer businesses annually
- 2,406 lost jobs annually
- 7.35 percent higher prices”
I’ll admit that it’s difficult to quantify these things and find direct links between regulations and these effects; there’s no specific regulation that led to one of these specific consequences. However, this novel program counts phrases that usually translate to regulatory requirements (like “shall” and “must”) to track changes over time. The authors then use this data along with data for other economic indicators to find the regressive effects. Given what we know about regulations generally, these numbers make sense and are pretty staggering.
From 1997 to 2015, the effective federal regulatory burden on Missouri increased by 54 percent. Researchers have found that an increase in the effective federal regulatory burden on a state is associated with an increase in the poverty rate in that state. This helps to explain why federal regulations have led to more people living in poverty and higher income inequality. Regulations reduce entrepreneurship because they increase the red tape one must cut through to be successful, which impacts the number of businesses in a state. Regulations also increase the compliance costs for businesses, which they then transfer to consumers by increasing prices.
These regulations are not just affecting the industries or groups to which they are targeted. They can affect Missouri workers, small businesses, and consumers. As we continue through this legislative session in Missouri, we should remember the unintended consequences of legislation and regulations.
