New study finds regulatory onslaught costing small manufacturers big

The federal regulatory burden is costing small manufacturers $50,100 per employee per year, according to the topline findings of a new National Association of Manufacturers study on the macroeconomic impact of the onslaught of federal regulations. The total cost of federal regulations, estimated at more than $3 trillion, outpaced the economic output of the entire manufacturing sector.

“The unbalanced federal regulations make it challenging to grow manufacturing in America by siphoning resources away from job creation and our communities,” NAM President and CEO Jay Timmons said. “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. 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.”

In Arizona, which since 2018 has experienced one of the country’s fastest growth rates in manufacturing and which is quickly becoming the country’s most vibrant hub for semiconductor production, onerous federal regulations risk stifling growth and innovation.

“Nearly 200,000 Arizonans work in manufacturing, making products utilized all over the globe in sectors that range from helicopters, to sporting equipment, to electric vehicles,” said Grace Appelbe, executive director of the Arizona Manufacturers Council, NAM’s state affiliate. “Unfortunately, all that exciting economic activity is increasingly getting tied up in red tape. As compliance costs rise and more resources are devoted to navigating the thicket of byzantine rules, manufacturing job creators can’t reinvest in their business and hire at the rate they’d like to.”

Regulatory costs fall disproportionately on smaller manufacturing firms. According to the NAM study, the average U.S. company pays approximately $13,000 per employee per year to comply with federal regulations, but the average manufacturer in the United States pays more than double that amount, over $29,000 per employee per year. For manufacturers with fewer than 50 employees, the number jumps to an estimated $50,100 per employee per year, meaning that a small firm with 20 employees bears around $1 million in annual compliance costs.

“Our smaller manufacturers are bearing a regulatory cost burden that is more than three times that of the average U.S. company,” Appelbe said. “We can’t expect the manufacturing sector to grow and to keep pace with our competitors around the globe if we’re saddling our job creators with inefficient, duplicative, and unnecessarily complex regulations.”

NAM surveyed manufacturers who said that if their regulatory costs were reduced, they would reallocate current compliance funds toward employee compensation and hiring, investment, research and development, sales and marketing, enhancing price competitiveness and improving return on investment.

In addition to the survey research, the study authors derived their 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. 

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