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Federal Regulations Place Significant Financial Burden on Small Manufacturers

by Anna

Small manufacturers in the United States are grappling with the increasing weight of federal regulations, with the cost per employee reaching a staggering $50,100 per year, according to preliminary findings from an upcoming study by the National Association of Manufacturers (NAM). The study delves into the macroeconomic impact of the relentless influx of federal regulations and reveals that the cumulative cost of these regulations has now surpassed $3 trillion, exceeding the entire economic output of the manufacturing sector.

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NAM President and CEO, Jay Timmons, emphasized the detrimental impact of this regulatory burden on the manufacturing industry, stating, “The unbalanced federal regulations make it challenging to grow manufacturing in America by siphoning resources away from job creation and our communities.” He went on to note that these regulations hinder economic growth, curtail job creation, and suppress wage growth, particularly affecting small and medium-sized manufacturers.

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Total Cost of Federal Regulations: The study estimates the total cost of federal regulations in 2022 at an astonishing $3.079 trillion (in 2023 dollars), equivalent to 12% of the United States’ Gross Domestic Product (GDP). Notably, this sum exceeds the entire economic output of the manufacturing sector, which stands at $2.91 trillion.

Rising Regulatory Costs: The annual cost of complying with federal regulations has witnessed a significant increase, soaring by $465 billion since 2012 when adjusted for inflation.

Impact on Small Manufacturers: For small manufacturers, the regulatory burden is particularly onerous, amounting to $50,100 per employee. This translates to an annual compliance cost of approximately $1 million for a small manufacturer with 20 employees.

Manufacturing Sector’s Perspective: The manufacturing sector as a whole bears a regulatory cost of around $350 billion, equivalent to 12% of the sector’s contribution to GDP. This represents a 26% increase in the inflation-adjusted cost since 2012, when manufacturers shouldered $277 billion in compliance expenses.

Enhanced Competitiveness: Manufacturers surveyed in the study expressed that they could significantly enhance their competitiveness if the costs associated with federal regulations were reduced. The funds currently dedicated to compliance could be redirected toward various avenues, including employee compensation, hiring, investment, research and development, sales and marketing, price competitiveness, and improving return on investment.

Comparative Size: The regulatory burden on the manufacturing sector is so substantial that it surpasses the entire economies of 29 American states, underscoring the magnitude of the challenge faced by the industry.

These findings not only shed light on the financial constraints that federal regulations place on small manufacturers but also emphasize the need for a balanced approach to regulations that ensures economic growth, job creation, and overall prosperity. NAM’s call for the Biden administration to address these challenges and mitigate the regulatory burden on the manufacturing sector highlights the urgency of the issue and the imperative to promote a flourishing American manufacturing industry.

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