Federal regulations cost small manufacturers $50K per employee
Annual regulatory costs per employee top $50,000 for manufacturers with fewer than 50 workers
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The growing cost of federal regulations is weighing heavily on the manufacturing industry, with smaller firms bearing a burden that is estimated to cost over $50,000 per employee per year, according to a new study.
The National Association of Manufacturers (NAM) released a report Wednesday about the cost of federal regulations to the U.S. economy, manufacturing and small business that found the total cost of federal regulations across the economy in 2022 was nearly $3.1 trillion, or about 12% of the U.S. economy’s gross domestic product.
The regulatory cost to manufacturers has risen from $277 billion in 2012 to about $350 billion in inflation-adjusted dollars, an increase of 26% over a decade.
For companies of all sizes across the economy, the annual regulatory cost per employee is about $12,800 in 2023 dollars, but it is more than double for manufacturers, who pay about $29,100 per employee annually. Manufacturers with more than 100 employees had a slightly lower average cost of $24,800 per employee, but those with fewer than 50 employees face a regulatory cost of $50,100 per employee.
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A report by the National Association of Manufacturers found that the cost of regulation per manufacturing employee is more than double the economy-wide average. (Jill Connelly/Bloomberg via Getty Images / Getty Images)
"We knew it was becoming more burdensome, based on what we were hearing from our manufacturing members, but frankly we were even startled at the growth and the cost of regulations and regulatory compliance for manufacturers," NAM's president Jay Timmons told FOX Business.
"We are not only concerned about what the costs have been to date, but the costs that are coming down the pike with a slew of regulations coming out of the Biden administration that will significantly increase this number."
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Timmons noted that regulatory costs are not only expensive but also time-consuming, pointing to NAM’s findings that about two-thirds of its manufacturing members reported spending over 2,000 hours on federal regulatory compliance, while 17% spent more than 10,000 hours annually.
Regulatory burdens also weigh on the ability of manufacturers to hire workers, increase their compensation and invest in their operations to spur growth. Timmons noted that about 69% of small manufacturers would hire more workers or boost compensation if the regulatory burden were eased, while about 70% of manufacturers would buy more capital equipment.
Timmons noted the NAM found about two-thirds of its manufacturing members reported spending over 2,000 hours on federal regulatory compliance, while 17% spent more than 10,000 hours annually. (Jeff Kowalsky/Bloomberg via Getty Images / Getty Images)
Timmons said there has been a "marked increase in the number" of regulations being pushed by federal agencies and the scope of the rules, noting that manufacturers are "dealing with over 100 regulations from 30 different agencies" at the federal level alone.
He added that while Congress passed the bipartisan infrastructure law and CHIPS Act to spur U.S. manufacturing in critical industries like semiconductors with the backing of President Biden, the slew of regulations threatens to undermine those efforts.
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"It’s almost as if the agencies aren’t talking to the White House about what the president’s agenda is, and they seem to be working against what he’s trying to achieve, which is pretty unfortunate when you have the American people, who, I think, also agree that we need to strengthen here in this country so that other countries aren’t outcompeting us," Timmons said.
President Biden has touted his support for manufacturing even as federal agencies push regulations that hamper the industry. (Reuters / Reuters Photos)
He added that "we all want to see cleaner air, cleaner water, safer communities, but oftentimes what happens is these well-intentioned folks who are buried in the bowels of the bureaucracy, who have no real-life experience in manufacturing, are writing rules that simply are impractical."
Timmons said that the Biden administration should pursue regulatory reform with input from industry stakeholders having a seat at the table for those discussions and said the White House should be more cognizant of the impact of regulations on the manufacturing sector.
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"We need somebody at the White House who is focused on the success of manufacturing overall besides the president, right? The president’s got a few other things he’s got to worry about," Timmons said. "We need somebody who is talking to every one of these agencies and asking them questions like, ‘Have you run this by actual manufacturers? Is this achievable or is this simply aspirational? We all have aspirations. What are the things that are achievable that we can write these regulations to do?’"