The Cost of Regulatory Compliance in the United States

75 Pages Posted: 23 Jan 2023

See all articles by Francesco Trebbi

Francesco Trebbi

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Date Written: January 15, 2023

Abstract

We quantify firms' regulatory compliance costs from 2002 to 2014 in terms of their labor spending to adhere to government rules. Detailed establishment-level occupation data, in combination with occupation-specific task information, allow us to recover the share of an establishment's wage bill owing to employees engaged in regulatory compliance. Regulatory costs account on average for 1.34 to 3.33 percent of the total wage bill of a firm, totaling between $79 and $239 billion in 2014. We investigate the returns to scale in regulatory compliance and find an inverted-U shape, with the percentage regulatory spending peaking for a firm size of around 500 employees. Finally, we develop an instrumental variable methodology for decoupling the role of regulatory requirements from that of enforcement in driving firms' compliance costs.

Keywords: Regulation, Regulatory Compliance, Labor Task, Occupation, Firm Growth, Economies of Scale, Regulatory Requirement, Enforcement

JEL Classification: G38; J01; K2; L43; L51

Suggested Citation

Trebbi, Francesco and Zhang, Miao Ben, The Cost of Regulatory Compliance in the United States (January 15, 2023). Available at SSRN: https://ssrn.com/abstract=4331146

Francesco Trebbi

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Miao Ben Zhang (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www.MiaoBenZhang.com/

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