Must-read: Nathan Goldschlag and Alex Tabarrok: “Is Regulation to Blame for the Decline in American Entrepreneurship?”

Must-Read: Nathan Goldschlag and Alex Tabarrok: Is Regulation to Blame for the Decline in American Entrepreneurship?: “Mounting evidence suggests that economic dynamism and entrepreneurial activity are declining in the United States…

…Over the past thirty years, the annual number of new business startups and the pace of job reallocation have declined significantly. A variety of causes for these trends have been suggested, including an increasing ability of firms to respond to idiosyncratic shocks, technology induced changes in the costs of hiring and training, and increasing regulation.

This research combines data from the Statistics of U.S. Businesses, which contains measures of the decline in economic dynamism, with RegData, a novel dataset leveraging the textual content of the Code of Federal Regulations. RegData contains annual industry level measures of the stringency of regulation. By combining these data, we are able to estimate the extent to which changes in the level of federal regulation can explain decreasing entrepreneurial activity and dynamism. We find that Federal regulation has had little to no effect on declining dynamism.