Regulating Away Competition: The Effect of Regulation on Entrepreneurship and Employment
24 Pages Posted: 7 Jun 2018
Date Written: 09/09/2015
Many scholars have worried that regulation deters entrepreneurship because larger firms can overcome the costs of complying with regulations more easily than smaller firms. Using novel data on the extent of US federal regulations by industry at the four-digit NAICS (North American Industry Classification System) level, the RegData database of the Mercatus Center at George Mason University, and data on firm births and employment from the Statistics of US Businesses, we run fixed effects regressions to show that more-regulated industries experienced fewer new firm births and slower employment growth in the period 1998 to 2011. Large firms may even successfully lobby government officials to increase regulations to raise their smaller rivals' costs. We also find that regulations inhibit employment growth in small firms more than in large firms.
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