How Big an Obstacle Is Regulation to Hiring?

The White House says regulation isn't holding back the economy, but small businesses disagree

615 regulation REUTERS Jonathan Ernst.jpg

Republicans say that too much regulation is preventing hiring, but Democrats don't buy it. Earlier this week, a Treasury blog post asserted that regulatory uncertainty is not a major impediment to job growth. As a happy coincidence, the same day Gallup published a new poll asking small business owners the biggest challenges are that they face. Their responses won't make the White House happy: they named regulation as their biggest problem. But let's dig into the results to see what they really mean.

Here's a pie chart I created using the Gallup poll results:

gallup reg cht1 2011-10.png

At 22%, "complying with government regulation" clearly wins. But here's the thing: the second and third biggest problems -- consumer confidence and lack of consumer demand -- are sort of the same thing. If you add those together, you get 27%.

So maybe poor demand does deserve the top spot? Not so fast: most Republicans that talk about regulatory burdens also include the new health care law. It got 5% of the vote. If you add that to government regulation, then it too has 27% of the vote. Here's a revised chart taking these changes into account:

gallup reg cht2 2011-10.png

From this, you can see that if you actually ask small businesses what the biggest problems are that they face, then regulation is just as relevant as poor sales.

But on some level, this might not correlate directly to hiring. Even if regulatory burdens were reduced, firms might not choose to hire immediately: demand might not be sufficient to warrant bringing on more workers. So the most we could gather from this poll question is that some additional hiring would occur if regulatory barriers were eliminated.

Luckily, Gallup asks another question: "Thinking about your small business and the economy, what would you need to see in order to feel that your business will thrive in 2012?" This time, "fewer government regulations" only got 12% of the vote. But the option was also only among three that the government could directly affect. "Better tax laws" got 6%, and "change of president" got 7%. Something tells me that the White House won't like that latter option very much.

So we aren't likely to see unemployment suddenly plummet if the government eliminates lots of regulations. This poll does, however, appear to show that regulation is among the major impediments to small business job growth within the government's control.

Image Credit: REUTERS/Jonathan Ernst