NAM Publishes Bogus Regulatory Cost Estimates

The National Association of Manufacturers (NAM) is a cynical organization. It knows that few journalists will read a lengthy paper on the cost of regulation and realize that it is dressed-up junk economics, so it has published a re-run of the truly meretricious report that Mark Crain and Nicole Crain issued four years ago. The new report is even worse than its predecessor, in the sense that the authors have chosen not to respond to any of the criticism of their earlier work—even though it has been shown to be based on bad research, unreviewable and probably biased data, and faulty assumptions about the relationship between regulation and GDP.

EPI’s Josh Bivens and others will deal with the main methodological problems with the Crains’ analysis. I want to focus just on the Crains’ re-use of the same indefensible research concerning the cost of OSHA regulation, which we first exposed in 2011. The Crains claim that OSHA regulations cost businesses $71 billion a year, even though the cost for new regulations since 2001 is only $733 million. How is it that the previous years’ regulation cost nearly 100 times as much? The Crains don’t have an explanation—they simply rely on someone else’s discredited work.

Joseph M. Johnson published “A Review and Synthesis of the Cost of Workplace Regulations” in 2005. Johnson’s paper makes many serious mistakes, but the biggest is the application of a cost “multiplier” derived from yet another analyst’s work. Harvey S. James, Jr. estimated that the true cost of OSHA rules is not the cost estimated by the agency at the time of rulemaking (which often turns out, in reality, to be too high), but a cost 5.5 times greater because of “fines for violations and the costs of the many non-major regulations for which no cost estimates exist.” This multiplier is ludicrous on its face, both because OSHA fines have never amounted to very much (even today the maximum fine that can be assessed for a willful or repeat violation is only $70,000, and the amount paid is usually far less than what is initially assessed) and because the costs of non-compliance should not be double-counted as compliance costs.

In addition, many of the non-major rules in OSHA’s earliest years were based on consensus standards, meaning that most employers were already in compliance and had no new cost. OMB estimated the cost of the minor rules OSHA issued from 1976 to 2002 as just 13 percent of the total cost of its rules, implying a cost of just 1.15 times the initial estimate, not 5.5. James claims to have based his estimate on data from a NAM survey that has been lost and cannot be reproduced. The Crains should be ashamed to rely on it.

There are many other issues regarding the use of 20-35 year old cost estimates of OSHA standards to say anything meaningful about their costs today. Limiting asbestos exposures, for example, had a real cost for many employers at one time, but they have all long since adjusted and the cost of using an asbestos substitute today is far less than switching to it was when the exposure standard was published. Given a choice between a safe product and one with asbestos, most employers today would avoid using asbestos because of tort liability even if no OSHA standard were on the books.

The Crains’ estimates are bogus and should be ignored or treated with derision.