Regulatory Accumulation in the Manufacturing Sector

Patrick McLaughlin, Jonathan Nelson, and Oliver Sherouse

Manufacturing is by far the most highly regulated broad sector of the economy, at least in terms of the number of federal regulatory restrictions that are relevant to the manufacturing sector. Recent data from the RegData Project show over 217,000 regulatory restrictions to be relevant to the broad manufacturing sector. Finance and insurance, the second-most-regulated sector by this metric, has about 128,000 relevant restrictions. By restrictions, we mean words like shall, must, may not, prohibited, and required that can signify binding prohibitions or obligations.

The latest release from the RegData project, RegData 3.0, allows us to examine the relationship between federal regulations and the numerous subsectors of manufacturing by using the North American Industry Classification System (NAICS). The NAICS breaks the economy down into different categories of activity and uses varying degrees of specificity, ranging from the broad sectors, such as manufacturing, offered at the NAICS 2-digit level, to the very granular subsectors, such as dye and pigment manufacturing, offered at the NAICS 6-digit level. The figure below shows the growth in manufacturing regulations at the NAICS 3-digit level. The chemical manufacturing and petroleum and coal products manufacturing subsectors lead the pack with the greatest number of relevant restrictions. In 2016, for the first time, the number of restrictions related to chemical manufacturing reached 100,000.

While paper and transportation manufacturing are affected by less than half as many restrictions as the two most restricted subsectors, they each have over 33,000 regulatory restrictions—a total that has steadily increased since 1970, the first year for which we have data. Rounding out the top five is nonmetallic mineral product manufacturing, the subsector that transforms sand, gravel, stone, clay, and refractory materials into usable products.

RegData allows us to examine the regulation of industries in even finer detail. The figure below shows the restriction counts at NAICS 4-digit level. Because the NAICS is hierarchical, we see various subsectors of chemical manufacturing and petroleum and coal products manufacturing in the top five list at this level. Pesticide, fertilizer, and other agricultural manufacturing leads the group, regulated by over 88,000 restrictions.

At the NAICS 5-digit level, we again see industries related to petroleum products at the top of the list, as shown in the figure below. Petroleum refineries are at the top, with over 87,000 relevant regulatory restrictions. The remaining four of the top five are chemical manufacturing industries. While petrochemical manufacturing is officially classified as a chemical industry, it is really a cross between chemical and petroleum, since it is the industry that produces usable chemical products derived from petroleum.

While a highly regulated explosives manufacturing industry is understandable, the next most regulated sectors are, unexpectedly, printing ink manufacturing and synthetic dye and pigment manufacturing. It is possible they are regulated so highly because inks and dyes are used for such a wide variety of purposes. Dyes are used for decorating clothing and food, as contrast agents for biological and medical imaging, and for colorizing lasers for manufacturing, medical, and astronomical research.

We see the theme continue at the NAICS 6-digit level, shown in the final figure below, with chemical production–oriented industries making up all five of the top five industries. Gum and wood chemical manufacturing is the most regulated at over 92,000 restrictions. Dye and pigment manufacturing also remains in the top five, with over 85,000 regulatory restrictions at the 6-digit level.