US Regulatory Burden, Compliance Spending, and Market Structure

This article examines the effect of regulatory cost on market structure. Regulation been associated in a number of studies with market consolidation. However, fewer studies have explicitly examined regulatory burden through the mechanism of higher compliance labor costs. This article extends concepts recently developed in related literature, utilizing U.S. Census Bureau data in a novel way to measure regulatory burden through compliance labor costs in most major sectors of the US economy. Next, it explores these labor costs as a mechanism linking regulatory burden with anticompetitive market dynamics in each sector, such as market consolidation and large firms’ share of revenue. The results demonstrate that conventional measures of regulatory burden (at both the federal and state levels) are associated with higher relative levels of compliance labor spending. It also examines the association between compliance labor and market structure across hundreds of individual industry categories, finding that higher compliance spending is associated with industry consolidation. In doing so, this article helps to establish compliance share of labor as a useful alternative to direct measures of regulatory burden. It also highlights the importance of regulatory burden in contributing to market structure dynamics, an important consideration for policymakers.