Is Pennsylvania’s economy dynamic enough to adapt to the post-Covid-19 world? Some of the most compelling data available suggest that it is – as long as Pennsylvanians are given a fighting chance.
Despite advantages like a diverse and hardworking population, Pennsylvania suffered slow economic growth over the past year – only ten states did worse in this regard. Before the pandemic, roughly one in eight Pennsylvanians were living in poverty. The situation got worse after Covid-19 erased almost a half-million local jobs.
Uncontrollable circumstances clearly played a part in this misfortune, but heavy-handed federal and state regulations, which slow the economy and disproportionately burden low-income families and small-business owners, are another contributing factor.
The pandemic was a boon to e-commerce and automation, and these trends will continue after the virus is gone. We’ve all seen our neighborhood shops adapt and retool in response to Covid-19. On the plus side, entrepreneurship increased in 2020 as well, with business applications up over 80 percent in Pennsylvania and across the country. Such adaptability can lead the state out of the coronavirus wilderness and help it cope with disruptive technological changes.
But regulatory hurdles block many adaptations. For example, school closures presented many parents with the hard choice of either providing education and care for their children or holding on to their jobs. When Pennsylvanians tried to adapt by creating at-home learning pods, they were met with regulatory pushback. If more than six kids are involved in a pod, parents face background checks, zoning ordinances, and mandatory evacuation plans, among other strictures.
Effective regulations protect the vulnerable and keep society safe. But many regulations are written with heavy input from established, influential businesses and special-interest groups. Some rules are written to limit competition by increasing the costs of starting a new business or entering an exclusive profession.
In one particularly egregious example, Pennsylvania requires 1,250 hours of education and training for barbers and cosmetologists, greatly curtailing the ability of new salons to open. Established salons, comfortably shielded from competition, enjoy inflated profits and are less challenged to innovate. Would-be hairdressers or barbers are left flipping burgers at a lower wage while cash-strapped consumers are forced to pay higher prices for haircuts.
Both the pandemic and burdensome regulation disproportionally harm low-income households. My recent Mercatus Center research shows that since 1999, the increase in federal regulations that affect industries in Pennsylvania is associated with an alarming annual loss of 361 small firms and 5,195 jobs. Federal regulations also increase the price of consumer goods, especially those bought by low-income families.
With less entrepreneurship, fewer jobs, and higher prices, it is no surprise that data point to a resulting 150,000 additional Pennsylvanians living in poverty and a 2 percent increase in income inequality.
At least in comparison with other states, Pennsylvania has been spared the worst of the growth in effective federal regulatory burdens; 39 states have seen a larger increase since 1997. Still, Pennsylvania has the 11th-most state regulations in the country (of the 44 states with available data). State leaders in Harrisburg should follow the example of reform leaders like Ohio and Idaho and kick-start their own reform efforts. Why not require, for example, fewer “licenses to work” in 51 low-income occupations? Though the licensing burden in Pennsylvania is modest compared with that of some other states, this reform can still increase economic mobility.
Of even greater concern is Pennsylvania’s administrative law code, which contains 13 million words and more than 162,000 distinct restrictions. Why not join the growing number of states taking a systematic look at which old regulations are actually working and which have outlived their usefulness – or never worked to begin with?
The first step toward a flourishing post-Covid-19 economy is freeing low-income workers and entrepreneurs from burdensome regulation so that they can begin to recover. In Pennsylvania, the steps are there to be taken.