California is perceived as having more—or more onerous—regulation of businesses than other places; it is a factor often cited as detrimental to the business climate, making doing business here harder to sustain, less competitive (relative to other states), and thus harder to launch. While regulations directly affect businesses, consumers may pay higher prices or have fewer options, communities may miss out on business and job growth, and whole swaths of the public may lose out on the benefits from economic growth if all aspects of regulation are not considered.
Not only do concerns center on “more regulation” but also on the complexity, conflicts, and lack of clarity within regulation that make it costly to follow, both in time and money. Sometimes referred to as policy or procedural “sludge,” layers of regulation and administrative burdens can advantage those within the system and disadvantage new businesses, entrepreneurs, and those without access to insiders.
Lack of information limits our understanding of the extent to which regulations may aid or impede business in California or elsewhere; it is difficult to capture the scale and scope of regulation as well as to connect regulatory variation with business sector dynamics. To start to unpack this fundamental issue affecting California’s economy, we leverage compendia of regulations that apply to firms across US states and across California cities; we use these to describe and compare the nature of regulatory contexts in which businesses operate. We also connect these differences across places to business dynamics to establish some basic facts that can frame discussions and research regarding the potential repercussions of regulation.
States regulate a host of business activities affecting nearly all business sectors in one way or another. Some of the most common and familiar business regulations are around the workforce, such as wage setting (minimum wage rates, hours, and overtime), worker health and safety, and rights to organize. California, New York, and Washington are well-known for their higher minimum wage regulations as well as policies that allow workers to organize more easily. Other highly visible business regulations set food safety standards, like labeling of food items and health inspection of restaurants, above and beyond federal policy. Additionally, states set forth rules of the road for business in taxation, banking and insurance, environmental impacts (like emissions, water quality), and more. Local governments may impose additional regulatory requirements on businesses, often having to do with more local issues or laws, such as permitting.
Typically, regulations are imposed to achieve some social benefit. One may evaluate the merits of that goal, the best approach to achieving it, and whether the costs are justified by the benefits. Indeed, critiques of the regulatory environment often center not on the reasonableness of the goal of a particular constraint but on how it is implemented. This report considers some of the potential costs of regulation but does not consider these broader questions. Nonetheless, understanding the regulatory landscape in California (and California cities) in relation to other locations can better inform discussions of the costs, benefits, and design of regulation.
Measuring regulation is challenging, given the range of jurisdictions setting and implementing policy (local, state, and federal, for starters), the variety of activities that are regulated, the constraints regulations impose on businesses, and the fact that regulations are in text and thus not necessarily easy to quantify.
Furthermore, how a regulation is implemented, how cooperatively government interacts with businesses, how regulations are enforced, and other factors can influence the ultimate impact of regulations. In this report, we do not claim to capture all dimensions of regulation. Our focus is on what might be considered the written content of regulations—how many there are, what industries or types of behavior they cover, and how binding the regulations appear to be based on their language.
Given that understanding the extent of regulation and its impact on business may be important for policy, we view this work as a meaningful first step towards characterizing the burden of regulation and understanding the impact of regulation on businesses. Additional research is needed to explore alternative and more definitive ways to measure the impact of regulation on business outcomes.
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