Regulatory Uncertainty & Jobs: The Evidence

It remains a common refrain that regulatory uncertainty is causing joblessness.  The evidence indicates that this is simply wrong.  Consider three major facts.

First, as Think Progress has pointed out, unemployment is currently lowest in health care, extractive industries, and the financial sector — exactly the areas where there is the most on-going regulatory effort.

Second, the Economic Policy Institute reports that the percentage of small business owners who report concerns about regulation or tax levels is little changed under Obama and lower than it was in parts of the Clinton and Reagan Administrations.

Third, as EPI also explains, “investment has increased more in this recovery than in the prior two recoveries and roughly the same as that of the 1980s recovery.”  So there’s no reason to view the current regulatory climate as impacting the investment picture.  Also, weekly hours are way down. This does not fit with the regulatory uncertainty claim because uncertainty should have much more impact on investment and new hires than on employee hours.

In short, “blame it on regulatory uncertainty” is a soundbite, not a theory.  It’s a sad commentary to the state of our political discourse that important politicians, who should know better, continue to harp on this discredited claim.

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Reader Comments

2 Replies to “Regulatory Uncertainty & Jobs: The Evidence”

  1. I interpret ‘regulatory uncertainty’ much differently – and, with my interpretation, lack of certainty in whether or not our federal government is going to establish a carbon market (or not!) and whether or not we’re going to make a more substantive long-term commitment to renewables serves as a core roadblock in a corporation’s desire to make smart business decisions. Just think about all the cash in reserves being held at present. Those are dollars that are not activating our economy.

    Until we as a nation commit to a longterm vision for where we want to go and how we want to get there, I feel we are just mowing a lawn of pebbles with no clear direction.

  2. Dan —

    The first of your bullet points is completely meaningless. Even assuming that sector-based unemployment statistics are meaningful, the question is not whether unemployment is higher or lower than it would have been otherwise, not whether it is higher or lower in one sector than another.

    Further, the claim has never been that regulatory impacts are confined to the sector regulated. So, for instance, if the health care reforms increase regulatory uncertainty, this effect would not be confined to the health care sector, as much of the burden of that law falls on employers facing increased insurance costs and/or penalties under the employer mandate. Similarly, we would not expect the effect of additional regulations on the financial sector to be felt primarily within the financial sector. Rather we would expect such effects to be felt more by those industries that rely upon the financial sector for raising capital, etc. So the chart Yglesias points to is quite silly.

    [On the other hand, if regulation is hampering job-producing investments, we might expect that to be most observable in a lack of investment in new capital — and, lo and behold, where is unemployment the greatest? In the construction sector! If health care companies aren’t building new hospitals or medical office buildings, it would show up as more unemployed construction workers before it sows up as more unemployed nurses or medical technicians. Again, however, I don’t think this is all that meaningful a chart.]

    The surveys are more probative, but of limited usefulness as well. First because of the unwarranted focus on small business, and second because these sorts of surveys are not particularly precise. If a construction firm isn’t working because there isn’t sufficient demand for its work, the firm will say the problem is lack of demand, but may or may not identify the cause of demand. This doesn’t mean regulatory uncertainty is a problem. But it does mean the surveys don’t prove otherwise.

    My own view is that the “uncertainty” argument is problematic because it is not particularly precise. If businesses don’t invest their resources, we generally assume it is because they don’t expect to make a sufficient return. We can call this “uncertainty” or we can call it lack of demand, or we can call it poor business prospects, or insufficient returns, or whatever, but I don’t think it matters. The question is what is causing it. Further, as I’ve posted on Volokh (e.g. here) some of the policy ideas put forward as a way to address “uncertainty” will do nothing to address this concern.

    I don’t expect you to jump on the uncertainty bandwagon, but I would expect a more thoughtful and rigorous effort at refutation.


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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

READ more