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Regressive effects of regulation on wages

Abstract

A growing body of literature analyzing the distributive consequences of regulation suggests that regulation may have particularly detrimental effects on lower-income households. Regulation can be regressive if it represents the preferences of the wealthy while imposing costs on all households. The specific channel through which regulation may impose costs on lower-income households is its effects on prices and wages. In this issue, Chambers et al. (Public Choice. https://doi.org/10.1007/s11127-017-0479-z, 2017) investigate the impact of regulation on prices. They find that regulation raises consumer prices; regulatory interventions therefore are regressive because lower income consumers tend to spend larger percentages of their budgets on regulated goods and services. In this paper, we seek to analyze the effect of regulation on wages across different income levels and occupations.

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Notes

  1. Thomas (2012) argues that regulation often targets the mitigation of low-probability, high-cost risks, reflecting the preferences of high-income households. In the absence of intervention, low-income households would mitigate higher probability, lower-cost risks first. Regulation displaces some private risk mitigation efforts and, moreover, public action aimed at reducing overall exposure to environmental and safety risks mainly indulge the risk-mitigation preferences of wealthier households. Because all households bear the costs of regulation in the form of higher prices and lower wages, the effects of public regulation of health and safety risks are regressive.

  2. Aidt (2003) shows that distributive programs that offer inefficient subsidies are unlikely to be contested politically. Programs that employ inefficient means of taxation are, on the contrary, likely to be contested. He also shows, relying on an extended version of Becker’s (1983) pressure group model, that contrary to Becker’s predictions, on the whole, political competition increases rent seeking activity and that in the absence of such competition, the total social costs of regulatory intervention are self-limiting.

  3. Hillman (1982) likewise analyzes the dynamics of rent seeking among politicians, industry representatives and all other voters.

  4. See Al-Ubaydli and McLaughlin (2015) for details on the database’s construction.

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Correspondence to Diana W. Thomas.

Appendix

Appendix

See Table 9.

Table 9 Pre-recession effects of regulation on the distribution of wages

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Bailey, J.B., Thomas, D.W. & Anderson, J.R. Regressive effects of regulation on wages. Public Choice 180, 91–103 (2019). https://doi.org/10.1007/s11127-018-0517-5

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Keywords

  • Regulation
  • Wages
  • Inequality
  • Employment

JEL Classification

  • K23
  • L51