Regulatory compliance costs and productivity

This paper develops task-based measures of regulatory compliance costs for the United States, selected European countries and Australia, by estimating the share of labour resources devoted to regulation-related tasks. For this, it assesses the importance of regulatory tasks by occupation and then aggregates occupation-level regulation intensity using employment and wage data. The paper then documents that these costs are material and broadly rising. In the United States, the wage share devoted to compliance tasks increases from 4.0% in 2012 to 4.2% in 2024, while remaining stable at about 4.5% in Australia. In Europe, an employment-based indicator rises from 3.7% in 2011 to 3.9% in 2023, higher than in the United States. Econometric analysis using state-level panel data for the United States suggest that increases in regulatory costs are associated with weaker labour productivity and business dynamism. In particular, the increase in the United States since 2012 is associated with a decline in labour productivity of 0.5% and a reduction in the share of workers employed in young firms of 0.4 percentage points. The findings underscore the importance of better regulatory policies to manage the stock of existing regulations, and of “smart regulation” preserving social benefits while limiting unnecessary compliance burdens.