The Cost of Regulatory Compliance in the United States

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