Home > SD 2014 Ballot > Regulation costs need to be part of the minimum wage discussion

Regulation costs need to be part of the minimum wage discussion

May 13, 2014

docs_pileCurrently there is a lot of talk about raising the minimum wage. This is both at the national level by the Democrat Party (the White House has a page for the issue) and here in South Dakota through Initiated Measure 18 on the ballot this fall. I will save the discussion of minimum wage increase for a different day. But I do think it is important to look at more than just how much income each person takes in at their job. Part of the discussion should focus on how much is taken directly through payroll taxes. But it is equally important in the discussion to see how much money the government is taking from hard-working Americans indirectly through regulatory costs.

To further the discussion of regulatory costs the Competitive Enterprise Institute (CEI) has released the 2014 version of its annual snapshot of the federal regulatory state called “Ten Thousand Commandments” (PDF). The whole report is worth reading. The CEI has provided a brief summary of the findings here.

One finding in particular is important to take into account when talking about wages and the purchasing power of hard-working Americans:

Regulatory costs amount to an average of $14,974 per household – 23 percent of the average household income of $65,596 and 29 percent of the expenditure budget of $51,442. This exceeds every item in the household budget except housing – more than health care, food, transportation, entertainment, apparel, services, and savings. Some 63 departments, agencies and commissions have regulations in the pipeline.

Regulations are way for DC politicians and bureaucrats to increase taxes on citizens without actually having to go through the whole appropriations process. Every little regulation that is passed has a cost to businesses, which is then passed on to consumers. I’ve had this debate with people before and almost always get asked this “well which regulation would you end to fix this problem”. That is the problem, no single regulation is “THE” problem. Almost all regulations appear to have a small cost; yet when all of the thousands of regulations are added up they combine into a huge burden on businesses and consumers alike. Simply increasing the minimum wage will not reduce the purchasing power that regulations are taking away from hard-working Americans.

I think it is good and healthy for there to be a debate on the minimum wage. But the debate won’t be honest if other factors of purchasing power are not taken into account. Sadly the topic of minimum wage will likely become so politically charged that such a debate won’t really happen. Instead it will end up being a partisan battle that will come down to talking points that fail to look at the whole picture.

  1. Steve
    May 14, 2014 at 1:34 pm

    The term “regulatory costs” gets used a lot, but I’m not sure I understand fully what these costs are. Can you give examples of some of these costly regulations? What is being required and how does it increase costs?

    Like all costs, the price has to be weighed against the value. If the value of regulation warrants the price, then would there still be the objection? For example, a regulation that requires water used in manufacturing be returned to its source in non-toxic condition seems like it would have value in protecting out drinking water. I also presume that businesses do not want to pay these regulatory costs, so without requirements, businesses would not hold themselves to environmental or safety regulations (or there would be no savings).

    • May 14, 2014 at 2:29 pm

      Great question Steve.

      You are right. All costs have to be weighted against their value. My biggest problems is the many small regulations that seem to have little cost, but add up to a lot. When new regulations are passed they are looked at in a vacuum, without looking at the overall regulatory field. Here is are some recent examples from just one of my customers:

      – New hire reporting and DHS verification. This company goes through a lot of new employees so must spend time each week doing new-hire reporting and using the E-Verify system. Since he doesn’t have the time to do this it is outsourced at a cost. It also is time sensitive because E-Verify must be submitted within a certain amount of time when first hired.

      – ACA compliance letters. Each new employee must get a ACA compliance letter. This is quick and easy to do, yet still takes time. HHS has said it is not likely to enforce this regulation, yet I’ve already had clients say they have been contacted by HHS because they haven’t done so and one of their employees applied on an exchange.

      – When renovating his facility extra cost was added to make the facility better handicap accessible. This despite the fact it was unneeded for his industry and it is unlikely that anyone in a wheelchair would every enter his business. This is a big case of a one-size-fits all regulation unnecessarily adding cost.

      – The client resells small amounts of a certain cleaning chemical. Since this chemical falls under a certain category him and his staff must be ‘certified’ in handling it. This despite the fact that the certification has nothing to do with his industry. When he took a class on this certification the trainer wondered why he was there. Sadly OSHA demanded he do so without seeing if it was really needed.

      – This client has customers across three states. He must determine the proper sales tax amounts for each job, complete the paperwork, and send the filing and payments accordingly. Because he doesn’t have the time to figure this out, much less do it, he has to hire an outside source to do this for him.

      – The client must keep track of what he has used instead of reselling to customers and pay use tax on it. This can be quite confusing for him because it is usually just one product out of a lot that is used.

      These are just a few things that come to mind when thinking of one customer. Each of the above regulations may seem good alone. But when added up they cost him money directly, or through lost time. Either way the cost in turn gets passed on to customers. Every business has a series of small regulations that must be paid for somehow. Some industries have great regulation costs, such as your example with water in manufacturing. I would say the biggest problem is that each regulation is looked at individually, instead of as a whole. THere are many regulations that probably are good, but that isn’t true for all of them. I believe its time to look at reducing the regulatory costs on businesses, and therefore the costs that are passed on to hard working Americans.

      Actually I’ve been pretty critical of SD Governor Daugaard. But I will give him credit for his ‘red tape initiate’ which actually has removed a lot of outdated and/or pointless regulations. Something like that at the federal level would be nice.

  1. June 10, 2014 at 4:40 pm
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