Op-Ed: Looking to increase your state’s employment? Reduce regulation

By James B. Bailey and Patrick A. McLaughlin Thu, September 17, 2026 at 9:01 PM UTC

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Illustration: Kate Guenther / The Center Square

When governors want more jobs, they usually reach for tax credits, development grants, or subsidies for a favored factory. Yet every state already controls a broader and more durable economic-policy lever: its own administrative code.

Our new research suggests that cutting state regulatory restrictions by 25 percent is associated with 4.4 percent higher employment growth. For the average state, our estimates for the period from 2016 through 2024 suggest rolling back those restrictions translated into roughly 10,000 additional jobs.

Taken together, state regulatory codes contain more than 400 million words. Of course, not every rule is bad: Regulations can protect health, safety, property, and consumers. The problem is that most regulatory systems are designed to add rules one at a time, while rarely reconsidering the accumulated stock. Even sensible rules can become obsolete, duplicative, or needlessly complex as technology and markets change.

To measure that accumulation, we use State RegData, which applies text analysis and machine-learning tools to state regulatory codes. It counts restrictions ­­­­­­­— terms such as "shall," "must," "required," and "prohibited" — and estimates which of 87 industries they target. We combine regulatory data from 2016 through 2024 with Bureau of Labor Statistics employment and wage data covering more than 95 percent of U.S. jobs. We then examine how changes in an industry's regulatory burden within a state relate to that industry's performance the following year.

The results are substantial. A doubling of state regulatory restrictions on an industry is associated with an 8.8 percent decline in employment growth and a 5.7 percent decline in wage growth. A doubling is unusual over a short period, but a 25 percent change is not: during the years we studied, 12 states increased their average industry-level restrictions by at least that much, while nine reduced them by at least that much.

One result is especially revealing. We did not detect a statistically significant change in the number of business establishments. Regulation's more visible effect may therefore be to keep firms from scaling. Businesses remain open, but expand less, hire fewer workers, and generate weaker wage growth. That is "stasis" in a literal economic sense.

This finding is consistent with earlier RegData research. A 10 percent increase in industry-level federal restrictions was associated with roughly 0.5 percent fewer small firms, with no comparable decline among large firms. Compliance often entails fixed costs — lawyers, reporting systems, permits, and management time — that a large incumbent can spread across more revenue. For a startup or small employer, the same burden can consume the margin that would otherwise finance a new worker, location, or product.

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State regulation may be especially consequential because firms have an exit option they lack under a uniform national rule: they can move across a state line. A governor who adds regulatory friction is not merely changing costs in the abstract. The governor is changing where the next investment, expansion, or hire is likely to occur.

None of this means states should indiscriminately erase their rulebooks. Our study estimates economic costs, not regulatory benefits. The relevant question is whether each rule still produces benefits that justify its costs — and whether a state has any reliable process for asking that question after a rule has been on the books for years.

Several jurisdictions show what such a process can look like. British Columbia reduced its regulatory requirements by 36 percent after adopting a regulatory budget, under which new requirements generally had to be offset by removing old ones. Earlier research found that the reform increased the province's economic growth rate by about one percentage point.

Idaho has gone further in institutionalizing retrospective review. Its zero-based system periodically requires agencies to justify existing rule chapters rather than presuming they should continue forever. In our new data, the number of restrictions facing Idaho's average industry fell by almost two-thirds from 2018 to 2024. Idaho also recorded the nation's fastest employment and wage growth over the period. That correlation does not prove regulatory reform caused all of Idaho's success, but it does establish that large-scale review is administratively possible.

Virginia offers another model. Its Office of Regulatory Management combines centralized oversight, economic analysis, transparency, and explicit reduction targets. The state reports that it has streamlined more than 88,000 regulatory requirements and 12 million words of guidance, with estimated annual savings exceeding $1.2 billion, while preserving essential public protections.

States need not copy any one model. They can use sunset reviews, regulatory budgets, independent economic-analysis units, or legislative approval for the costliest rules. The common principle is simple: treat the stock of regulation with the same seriousness that states treat taxes and spending. Measure it, review it, and require tradeoffs.

Tax incentives help the firms officials select. A cleaner regulatory code improves the environment for every entrepreneur willing to take a risk and every employer considering another hire. Governors searching for their next jobs program should begin not with another subsidy package, but with the rules already on their books.

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Source: “AOL Money”