An Excess of Regulations Smothers Economic Growth Does this regulatory overload harm Delaware's economy?

An Excess of Regulations Smothers Economic Growth

Does this regulatory overload harm Delaware's economy?

By Dr. John Stapleford

Center for Analysis of Delaware's Economy & Government Spending

February 4, 2021

To answer this question, we calculated two measures of the state’s economic performance: the percent change in total employment by state from 2009-19 and the percent change in per capita income by state from 2009-19.

Are the number of words of regulation by state inversely related to these measures of macroeconomic performance? The answer is YES.

A 10% increase in words of regulation per employee results in a 3% decrease in the growth rate of total employment, and it results in a 1% decrease in the growth rate of per capita income.

Both relationships are statistically significant at the highest level. And the words of regulation per employee are adjusted for the scale economies of larger states.

Delaware, like all states, requires basic regulations to function smoothly. Given the negative impact of more regulation on the job and per capita income growth, care should be taken to avoid adding nonessential regulations.

What do we do?

Regulations pile up over many decades because the admin employees are not tasked or motivated to reduce the outdated regulations. What has worked in some states to solve this problem is the Governor or Legislature legally announces that “all regulations of every admin. dept. are hereby repealed effective nine months from now.” This approach forces the admin. depts. to review their regulations and throw out the unnecessary ones, often resulting in an estimated 25% reduction in regulation word count.

(As cited in a previous CRI release, the Mercatus Center, using its StateRegData software, has compiled millions of words of regulations by state. According to Mercatus, the Delaware Regulatory Code contains 104,562 restrictions and 6.7 million words. It would take an individual 374 hours to read the entire DRC.

To compare Delaware to other states, the total regulation words were divided by total employment in 2019 (BEA). Delaware leads all the states with 11.1 words per employee. The average for all the states is 4.2 words per employee.)