Many scholars have worried that regulation deters entrepreneurship because
it increases the cost of entry, reduces innovation in the regulated industry, and benefits
large firms because they can overcome the costs of complying with regulations more
easily than smaller firms. Using novel data on the extent of US federal regulations by
industry and data on firm births and employment from the Statistics of US Businesses,
we run fixed effects regressions to show that more-regulated industries experienced
fewer new firm births and slower employment growth in the period 1998–2011. Large
firms may even successfully lobby government officials to increase regulations to raise
their smaller rivals’ costs. We also find that regulations inhibit employment growth in
all firms and that large firms are less likely to exit a heavily regulated industry than
small firms.
