Thursday, February 23, 2012

Exhibit A against the "regulations are killing jobs" argument

In 2010, the Minnesota Legislature allocated money to commission a study of the impact that regulations have on business start ups in Minnesota. In December 2011, the Southwest Minnesota State University Marketing Advisory Center completed the report of the first comprehensive study to explore the impact of business regulations on business startups. The impetus for the study was testimony from 3M executive Alex Cirillo, who testified that he had heard from business owners that it was more difficult to start a small business in Minnesota than other states, but that this was all anecdotal. Well, the results are in and they do not match the Republican story about Minnesota's regulatory climate strangling business, nor do they support the Republican approach to growing jobs.

First, the bottom line of the study is regulations are not strangling business startups. To the contrary, Minnesota leads the region:
Regardless, it appears that regulations and requirements in Minnesota are not detrimental to it being the leader in the five-state area for new business start-ups. Between 2004 and 2008, Minnesota experienced the largest increase in number of total small businesses (less than 500 employees). 
Or, as the study concludes:
It would appear from this study that regulations; neither the quantity, difficulty surrounding securing information or the volume of licenses, permits or inspections required; are detrimental to Minnesota in being a leader in the five-state area for the start-up or existence of business entities. Business start-ups continue to be relatively strong in Minnesota when compared to surrounding states. 
Second, costs to start a business are low in Minnesota:
Costs associated for starting a business in Minnesota compared favorably with the adjacent states. When comparing the costs, Minnesota and North Dakota had the lowest percentage of start-ups requiring $5,001 or more. Those businesses able to start-up with $0 to $500 initial investment found Minnesota to be comparable to the other states in the study. 
Third, tax breaks are not a significant factor in business location decisions:
None of the [five] states seem to be gaining a strategic advantage in attracting small start-up businesses by offering tax incentives. South Dakota had 11% of their respondents indicating they received some form of tax break for locating their business within the state. All of the other states were in the single digits for percentage of start-ups receiving any form of tax break. 
Not only that, only 2% of small business survey respondents listed lower regulatory burdens as the reason why they located in a state.

Remember, this is the only study that actually examined the connection between regulations and business formation in Minnesota, it was commissioned by the Legislature, and conducted by Southwest Minnesota State University. It should be Exhibit A in any debate about the supposedly onerous impact of regulations on Minnesota small businesses. Please go and read the whole thing.

EDIT: The initial version of the above paragraph said "job creation" instead of "business formation." I think both are accurate, but wanted to be careful in my phrasing. The study begins its "Discussion" section with the following:
Previous studies, often commissioned by various states, have had mixed results in determining characteristics that attract new businesses with no one state in the upper Midwest scoring a decisive victory in all categories generally considered as benchmark factors. These previous studies have concluded with various ranking strategies depending on the measure incorporated in the study. Some of these studies were previously discussed in this report; none were based on the number or intensity of regulations to determine their effect in either encouraging or rejecting that state from consideration in establishing a business. This study appears to be the first to explore this variable and its effects on business formation.
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