A Heavy Regulatory Load

Small manufacturers bear a disproportionate share of the costs of federal environmental regulations. That's one of the key findings from research commissioned by the Small Business Administration and conducted by economist Mark Crain of Lafayette College. Complying with federal environmental regulations costs manufacturers with fewer than 20 workers an average of $15,747 per employee, more than triple the $4,970 cost per worker for companies with 21 to 499 workers.

Crain calculated the figures by examining regulatory cost estimates from the U.S. Environmental Protection Agency. Costs of pre-1988 EPA regulations were obtained from earlier research by Robert Hahn and John Hird, who estimated the costs of all federal regulations on the books before that year. Crain also used payroll data from the SBA and pollution abatement cost data from the U.S. Census Bureau, which helped determine the share of total regulatory costs borne by companies in each size category.

SBA economist Joseph Johnson says compliance involves mostly fixed costs that don't change much whether a company has one smokestack scrubber or three. Businesses must also pay for monitoring, permits, and studies. Smaller manufacturers often lack the in-house expertise needed to comply with environmental regulations, requiring additional consulting expenses. That all adds up to make compliance more costly for smaller companies.

Regulatory costs are a huge competitive issue, says Crain, given that small companies make up about 75% of U.S. manufacturers. When creating regulations, government "must do more to balance costs and benefits," says Crain, or risk seeing manufacturers move to countries with fewer restrictions.

By James Mehring

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