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Chamber of Commerce Regulation Study Doesn't Get the Job Done

The U.S. Chamber of Commerce released a study claiming that regulation costs more than 700,000 jobs. The study, commissioned by the Chamber, ranks states as "good," "fair" and "poor" on the basis of their supposed regulatory freedom.

Unsurprisingly, its conclusions don't hold up well when compared with straightforward unemployment data.

The study -- like the Chamber itself -- promotes the idea that lax state regulation encourages job growth in the private sector. It suggests rating state-government policy via an "employment regulation index" (ERI):

The ERI is based on rankings of 34 measures of state labor and employment policies covering six different categories: (1) The Employment Relationship and the Costs of Separation; (2) Minimum Wage and Living Wage Laws; (3) Unemployment Insurance and Workers' Compensation; (4) Wage and Hour Policies; (5) Collective Bargaining Issues; and (6) the Litigation/ Enforcement Climate.
The study then attempts to correlate this ERI with unemployment rates and new business formation. But there are a couple of significant problems. One is that "new business formation" would include all those people who are out of a job and trying to start a new business. Without a correlation to the number of jobs actually created, it's a relatively meaningless number.

More realistic is the use of unemployment figures. The study claims that, all other things being equal, higher ERI values correlate to greater job growth.

So you'd generally expect the "good" states to fare better on a straightforward measure -- say, unemployment rates -- than the "poor" states, right? Think again. Here are the most recent monthly unemployment statistics from the U.S. Bureau of Labor Statistics, which I've put together with the Chamber's own list of good and poor states (click to enlarge):

Chamber Good States List

Chamber Bad States List

The numeric columns, from left to right, are the monthly unemployment rates, the difference between the December and August rates, and the difference between the December rate for the state and the national unemployment rate at the time, 9.4 percent. A negative score in the Change column means that unemployment was lower in December than in August. A negative score in the "Diff from US" column means that unemployment was below the national average.

Although this isn't a sophisticated analysis, you'd generally expect more good states than bad states to both decrease their monthly unemployment and end up below the national unemployment rate. As it turned out, the opposite was true.

Among the good states, 7 lowered their unemployment rate from August to September. But 12 of the bad states dropped their unemployment rates. While 8 of the good states were below the national unemployment average, 11 of the bad states were.

Undoubtedly there are more subtle ways of doing this analysis. At the same time, executives can't let details obscure the larger picture. If state regulation, broadly construed, really is bad for employment, you should be able to see that in even a crude comparison such as mine. If not, then something's wrong with the analysis -- or you're more attached to defending a pet theory than in figuring out what may actually affect business.

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Image: morgueFile user taliesin, site standard license.
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