United States Small Business Administration
Office of Advocacy
RS 163
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Purpose

Compliance with regulation imposes burdens on businesses for which they receive no explicit benefits or compensation. Despite widespread recognition that the scope of regulation is broad and its economic impact large, systematic efforts to track and account for regulatory burdens on firms are uncommon.

This study is motivated by the Office of Advocacy's statutory mandate to "measure the direct cost and other effects of government regulations on small business" and to "recommend specific measures for creating an environment in which all businesses will have the opportunity to compete effectively and expand to their full potential." The purpose of this effort is to deepen knowledge of regulatory burdens, provide current information about these burdens, and illuminate the effects of such burdens on firms of different sizes.

Scope and Methodology

A nationwide telephone survey of 360 business firms was carried out in July 1994. The firms were drawn from three sectors of the economy that represented more than 80 percent of private employment in 1990--services, trade and manufacturing.

Fifteen 4-digit SIC code industries were chosen; each industry had between 50 and 70 percent of its jobs in small business and employed at least 100,000 workers. The 15 industries, while diverse, are not intended to be statistically representative of all industries in the sectors.

The study focuses on specific federal actions that regulate how businesses treat their employees and customers, and how they carry out their production or management activities. Four basic questions were investigated: (1) What perceptions do firms have of their regulatory burden? (2) What profile can be created of regulatory burden characteristics? (3) What regulatory cost components (dollar costs and time burdens) can be identified and assessed through such a survey? (4) What regulatory burden reduction issues emerge from the survey?

Highlights

• On a per-employee basis, firms in the survey spent an average of roughly $17,000 (excluding capital costs) on regulatory compliance; the very smallest firms (1-4 employees) spent possibly as much as $32,000 per employee. Compliance costs on a per-employee basis generally fell as firm size increased.
• Nearly two-thirds of the surveyed firms believed they face more than minor regulatory burdens; a quarter of them described their burdens as "substantial."
• Firms with fewer than 50 employees reported the largest shares of revenues used to pay for their main regulatory burdens. Firms with 20-49 employees appeared to be hardest hit, spending nearly 20 cents of every revenue dollar on regulatory compliance (excluding capital costs).
• There are economies of scale in regulatory clerical work.
• The cost of clerical burden is disproportionately large for small firms; the larger the firm, the smaller the number of clerical hours spent on regulation per employee.
• Two areas dominated as the source of greatest concern to the businesses surveyed: federal tax compliance paperwork and payroll record keeping. Here again, the pattern of disproportional burden on small firms was reported. Simplifying reporting and record keeping requirements was a virtually universal reform request.
• Substantial variability in regulatory burdens perceived was observed across industries and regions. Firms complained that lack of regulatory clarity and frequent regulatory changes were major contributors to reduced profitability and restrained growth and innovativeness.

Ordering Information

The complete report is available from:

National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield VA 22161
(703) 487 - 4650
TDD: (703) 487 - 4639

Order Number: PB95-263190

Cost: A07/$27.00; A02/$12.50 Microf.

*Last Modified 6-11-01