Twentieth Century Regulations are Holding Back Millennials
This is a summary of testimony before the Joint Economic Committee. Read the full testimony here.
Chairman Coats, Vice-Chairman Brady, Ranking Member Maloney, and other Members of Joint Economic Committee, thank you for the opportunity to give testimony on how to embrace millennials’ vision of the American Dream. I am a fellow at Economics21 at the Manhattan Institute for Policy Research and am the coauthor of Disinherited: How Washington Is Betraying America’s Young. Over the past four months, I have traveled across the country talking about my book and hearing millennials discuss their economic problems and plans for the future.
Millennials have been called the most entrepreneurial generation. While this may be true based on their desires to start businesses and their near-universal respect for entrepreneurs, few young Americans have followed through on their entrepreneurial dreams.
A Bentley University survey of millennials found that 66 percent of respondents have a desire to start their own business and Deloitte found that about 70 percent of millennials envision working independently at some point in their careers.
Yet only 3.6 percent of private businesses are at least partially owned by someone under the age of 30. This is the lowest proportion since the Federal Reserve began collecting data nearly a quarter century ago. Additionally, the Brookings Institution reports that business startup rates are much lower now than in the 1980s.
These declines should not be surprising. Government policy, particularly in regards to regulation, is stuck in the 20th century and continues to hold back economic opportunity.
The U.S. Code of Federal Regulations is over 175,000 pages long. The number of pages has steadily accumulated since the 1970s, but five of the six all-time-high page counts have occurred during President Obama’s tenure. In these pages, there are over one million commandments from Washington in the form of restrictive words such as “must,” “cannot,” or “shall.” Attempting to comprehend which of these million restrictions apply to their businesses is a waste of young entrepreneurs’ valuable time.
Financial regulations, such as the Securities and Exchange Commission’s restrictions on equity-based investment, can severely limit a startup’s ability to raise sufficient capital.
The JOBS Act of 2012, a law President Obama touted as one way he has aided millennials, included a provision to allow for equity-based crowdfunding. Debt- or rewards-based crowdfunding were already permitted under existing law. But the SEC has still not implemented the equity crowdfunding rules, forcing entrepreneurs to delay their projects.
Even if entrepreneurs are able to fund their businesses, labor regulations can prevent projects from getting off the ground. One example of this is occupational licensing, which requires people to spend substantial amounts of time and money to gain government permission to work. One out of three American workers has to be licensed or certified by the government to earn a living, up from one out of twenty in the 1950s.
It takes an average of 70 times as long to become a government-approved interior designer as it does to become a licensed EMT. Additionally, the pass rate for the Louisiana florist exam is about half as high as the pass rate for the Louisiana Bar Examination. These burdens vary across states, and licenses are rarely transferrable if a practitioner moves. This disproportionately affects those who have to move due to a spouse’s job, such as military spouses.
The negative effects on young people from excessive occupational licensing are one reason why President Obama’s 2015 budget called for $15 million to go to states that institute commonsense reforms to make sure that licensing keeps the public—not established practitioners and companies—safe. Further initiatives to curb states’ desires to license young people out of work deserve support from federal policymakers.
Other labor regulations affect the flexibility of entrepreneurs’ hiring decisions. A recent Labor Department proposed rule would expand the numbers of employees who qualify for overtime pay. Those who earn up to $50,400 a year might have to be paid overtime, up from a current level of $23,660 a year. This would reduce flexibility for entrepreneurs and employees. Telecommuting, another mainstay of startups, would also take a hit, since employers would have to keep close track of employees’ hours.
Furthermore, the U.S. Department of Labor is making it more difficult for startups to hire contractors. DOL recently issued an administrator’s interpretation to clarify the definition of an independent contractor.
Problems for startups arise because the interpretation downplays the employer’s lack of control over workers’ hours as a determining factor. This means that more workers will be determined to be employees rather than contractors. Startups will be forced to pay 30 percent more, money that they often do not have, to provide the associated benefits.
The American Dream may have once been finding employment at a large company, working there for a few decades, and then retiring with a defined-benefit pension, but now millennials’ American Dream looks much different than their parents’ and grandparents’. New opportunities to change or advance one’s career are prioritized, and individualized, flexible work arrangements are the model of the future.
Thank you for the opportunity to give testimony. I look forward to continuing the discussion and hearing your questions.
Read the full testimony here.
Jared Meyer is a fellow at the Manhattan Institute. He is the coauthor with Diana Furchtgott-Roth of Disinherited: How Washington Is Betraying America's Young. Follow Jared on Twitter here.
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