Federal regulations are disproportionately burdening the nation’s smallest manufacturers whose compliance costs average $50,100 per employee per year, according to the topline findings of a forthcoming study commissioned by the National Association of Manufacturers (NAM).
By comparison, regulatory compliance costs for all types of U.S. small businesses with fewer than 50 employees average $14,700 per employee per year, the research finds.
The analysis of the macroeconomic impact of federal regulations across various industry sectors puts the total cost to the economy at $3 trillion. The total annual cost of complying with federal regulations has risen by $465 billion since 2012, after adjusting for inflation.
In the manufacturing sector alone, companies now spend $349 billion to comply with the growing number of environmental, economic, tax, and occupational safety, health and homeland security regulations affecting their business operations. That represents a 26% increase from the inflation-adjusted $277 billion that manufacturers spent on compliance costs in 2012.
Smaller manufacturing companies pay an outsized burden, according to the findings. While federal regulations cost large manufacturers (more than 100 workers) an average of $24,800 per employee, medium-size companies (50 to 99 workers) pay an average of $28,000 and small companies (fewer than 50 workers) pay an average of $50,100 per employee.
NAM President & CEO Jay Timmons said unbalanced federal regulations hurt manufacturing growth and siphon resources from job-creation.
“The burden continues to grow year after year, undermining the bipartisan achievements from President Biden and Congress that have prioritized manufacturing—including the Bipartisan Infrastructure Law and the CHIPS and Science Act,” Timmons said. “It is chilling investment, curtailing our ability to hire new workers and suppressing wage growth, especially for small and medium-sized manufacturers. It is time for the Biden administration to take action to reverse course.”
Last summer, NJBIA was part of a NAM-led coalition of more than 130 manufacturing and business organizations that wrote to the Biden administration about the onslaught of federal regulations that are undermining manufacturers’ ability to grow their business, hire new workers and boost wages.
In a letter to the president’s chief of staff, Jeff Zients, the Manufacturers for Sensible Regulations coalition, whose organizations represent thousands of U.S. businesses that collectively employ millions of Americans, said the cost of complying with regulations has become enormous. The letter cited cost-compliances figures from earlier 2014 research, which the forthcoming report updates.
In the most recent analysis, economists Nicole V. Crain and W. Mark Crain continue a three-decade effort to analyze the total cost of federal regulations, and how the burden is distributed across sectors and firm sizes. To read the executive summary of NAM’s forthcoming benchmark Cost of Federal Regulations study, go here.
Two approaches were used for the latest analysis. The first is a survey of NAM members, conducted from July 20 to Sept. 1, 2023, to collect information about operational expenses dedicated to regulatory compliance, extrapolating these findings to the sector.
The second approach derives estimates based on an aggregation of federal agency cost estimates, combined with regression analysis that measures the impact on overall economic output. The cost allocations by sector and firm size rely on data from the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Census Bureau and the Internal Revenue Service.