Federal Regulation, Job Creation, and the Moderating Effect of State Economic Freedom: Evidence From the United States
45 Pages Posted: 9 Aug 2018
Date Written: July 19, 2018
Regulation has been shown to hinder employment and entrepreneurship, but regional variation is rarely explored. Engaging the theory of market-preserving federalism, we argue that regional economic freedom attenuates the negative influence of national regulation on net job creation. Using U.S. data, we find that regulation destroys jobs on net, but regional economic freedom moderates this effect. In regions with average economic freedom, a one percent increase in regulation results in 14 net jobs destroyed. However, a standard deviation increase in economic freedom attenuates this relationship by four fewer jobs destroyed. This moderation accrues strictly to older firms; regulation usually harms young firm job creation, and economic freedom does not attenuate this relationship.
Keywords: Regulation, Job Creation, Economic Freedom, Market-Preserving Federalism
JEL Classification: L26, L51, P48, R10
Suggested Citation: Suggested Citation