U.S. Chamber of Commerce Study Ranks States by Employment Regulations

March 8, 2011

HR.BLR.com

The U.S. Chamber of Commerce’s Workforce Freedom Initiative released a study, conducted by Seyfarth Shaw LLP and Navigant Economics, revealing that states with the largest burden of labor and employment regulation are sacrificing opportunities to reduce their unemployment rate, generate new business startups, and create jobs.

The study shows that if each state were to improve their regulatory climates to the level discussed in the report, the effect would be equivalent to a one-time boost of 746,462 net new jobs nationwide. Moreover, the rate of new business formation would increase by 12 percent, resulting in the creation of 51,590 new firms nationally each year. Reducing the burden of labor and employment regulation in the states could act as a free shot of economic stimulus, equal to approximately 7 months of job creation at the current average rate.

“Without cost to state governments or the federal government — or the taxpayers — states can take steps now to improve their economic conditions and begin to prime the pump of job creation and new business formation,” said Lisa Rickard, president of the Workforce Freedom Initiative. “The goal of this study is to provide state policymakers with an objective view of how policies in their states compare with policies in other states, and perhaps more importantly, how reforms can accelerate economic growth.”

To conduct the study, Seyfarth Shaw surveyed states’ labor and employment policies across six broad categories: the employment relationship and the cost of separation; minimum wage and living wage laws; unemployment insurance and workers compensation; wage and hour policies; collective bargaining issues; and the litigation/enforcement climate. Within those broad categories, they examined 34 individual policy areas.

Based on the results of Seyfarth Shaw’s survey, Navigant Economics developed an Employment Regulation Index (ERI) to sort the states into one of three tiers: good, fair, or poor, to reflect their overall regulatory environment. Fifteen states are in the “good” category, 20 in the “fair” category, and 15 in the “poor” category. States placed in the ranking tiers as follows:

Good: The states ranked as good are Alabama, Florida, Georgia, Idaho, Kansas, Mississippi, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, and Virginia.
Fair: The states ranked as fair are Alaska, Arizona, Arkansas, Colorado, Delaware, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Nebraska, New Hampshire, New Mexico, Ohio, Rhode Island, Vermont, West Virginia, and Wyoming.
Poor: The states ranked as poor are California, Connecticut, Hawaii, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New York, Oregon, Pennsylvania, Washington, and Wisconsin.

Individual factors that contributed to a state’s ranking are discussed in state-specific summaries. Navigant then performed an econometric analysis to measure the impact of a state’s ERI ranking on two key economic variables: the unemployment rate and new business formation.

In interpreting the ERI and the overall state rankings, it is important to note that achieving a “perfect” score on the ERI does not mean a lack of regulation in the labor and employment contexts and the study does not advocate for such an outcome. Federal law, for example, provides a multitude of workplace standards on its own.

“Governors across the country from both parties are looking at ways to encourage economic growth in their states, and reform of state labor and employment regulations could make an important contribution to returning the U.S. to a more rapid-growth trajectory,” concluded Rickard.

A full copy of the study including methodology can be viewed at the U.S. Chamber of Commerce website.

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