Regulation, Jobs, and Economic Growth: An Empirical Analysis

economy

by Tara M. Sinclair & Kathryn Vesey

March 12, 2012

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Claims about government regulation and its detrimental effects on job creation and economic growth are currently receiving substantial attention in the public sphere. Yet, conclusive evidence demonstrating this link between regulatory activity and macroeconomic indicators remains elusive. This paper seeks to empirically examine these linkages, using the on-budget costs of regulation over time as a proxy for federal regulatory activity. This analysis finds that the macroeconomic effects of regulatory agency budgets as a whole as well as of subcategories of regulatory spending are indistinguishable from no effect based on the data and statistical methods available. This finding is generally robust throughout our sensitivity analysis. Sinclair & Vesey  explore possible explanations for this finding, as well as why the results differ from other studies on the same subject. This report highlights throughout the numerous challenges associated with both accurately measuring regulatory activity and obtaining valid estimates of its effects on the macroeconomy. It also offers recommendations moving forward on how to keep the public conversation about regulation constructive and evidence-based.

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