Why Small Manufacturers Face a Double Whammy

Contribution by Stuart Rosenberg – Senior Manager

Per a survey by the National Association of Manufacturers small businesses are carrying an unbalanced portion of the $2.02 trillion which federal compliance regulations burden the economy.

What does this really mean for these small manufacturers and distributors?

The average U. S. Company pays almost $9,991 annually per employee in order to comply with those regulations. The average manufacturer practically pays double of that amount per employee for the year. For the small manufacturers, with less than 50 employees, the cost runs about $34,600 for each employee.

[blockquote style=”1″]The claim for this cost disparity is based upon economics of scale. A firm with only 20 employees incurs the same expense as a firm with 300 to 500 employees. The larger firms can readily withstand these costs due to spreading the costs over larger revenues and a large employee base.[/blockquote]

However, if you are a small manufacturer, you are encountering a double whammy from the cost of compliance regulation. One can safely infer from this that many small manufacturers might invest more in their companies – capital and people – if the regulations were less stringent. While some past administrations have either taken or recommended steps to alleviate this situation, the agencies themselves have taken an erratic view of the impact upon businesses.

A prime example is the EPA’s review of the ozone standards from the Clean Air Act. The ozone standards are under review. The EPA might recommend that the standard be reduced from 75 parts per billion down to 60 parts per billion. If this takes place the result might not be what the U. S. economy is ready to embrace – a loss of almost 3 million jobs and an increase in gas and electricity costs.

Perhaps this survey should be part of an ongoing discussion about the costs of regulations. We all want regulations that are administered fairly and protect employees and the public at large.

The question that needs to be asked is: How far do we need to go to enhance this protection?