Deregulation is taking center stage, as President Donald Trump’s administration plans to rollback regulations on banking, mining and other economic and environmental sectors. On January 30, 2017, Trump signed an executive order stating that all federal agencies must cut two or more regulations for every new one they introduce, according to The Washington Post.
“This will be the largest ever cut by far in terms of regulations,” Trump said, according to the article. “If you have a regulation you want, number one we’re not going to approve it because it’s already been approved probably in 17 different forms. But if we do, the only way you have a chance is we have to knock out two regulations for every new regulation. So if there’s a new regulation, they have to knock out two. But it goes way beyond that.”
According to the National Bureau of Economic Research, 17 percent of the U.S. gross national product in 1977 came from industries that were fully regulated. By 1988, this dropped to less than 9 percent of the GNP. “Researchers demonstrate that a number of measures of regulation — in particular barriers to entry — are negatively related to investment,” the article, “How Deregulation Spurs Growth,” said. “Regulatory reforms — in particular those that liberalize entry — are very likely to spur investment; tight regulation of product markets restricts investment.”
But what could Trump’s deregulation plan mean for the talent market? History shows mixed results.
“Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets,” an NBER working paper by Olivier Blanchard and Francesco Giavazzi, stated that deregulation leads to a decrease in entry costs, which has no effect on the product and talent markets in the short run. “But in the long run, it leads to entry of firms, thus to a higher elasticity of demand, a lower markup, and thus lower unemployment and a higher real wage.”
In other words, the harder it is for companies to enter an industry, the fewer investments there will be, including on talent.
“The record tends to be quite mixed,” said David Lewin, managing director and head of the labor and employment practice at Berkeley Research Group, a strategic advisory and litigation firm based in Emeryville, California.
Prior to Glass-Steagall Act repeal in 1999, which allowed banks to participate in both commercial and investment activity, the banking sector saw modest compensation, Lewin said. After deregulations, wages of those in banking rose substantially, as financial firms once barred from high-risk, high-reward markets like proprietary trading were now allowed to participate.
Deregulation doesn’t bode well for all industries, however. For instance, consider the freight and trucking sectors. Former regulations set by the Interstate Commerce Commission provided an advantageous environment for workers in the sector. Because of regulation, for instance, most drivers were assured full-time employment status; they also benefitted from the ability to join unions, which afforded them pay for working overtime. Since deregulation, the increase in competition means that companies must find ways to ship goods in less time and at a lower cost than competitors. The majority of drivers are now independent contractors, who receive little to no benefits, payroll taxes or overtime pay. Additionally, autonomous trucks are paving the way for more efficiency, along with an increase in the skills needed to program and operate the vehicles.
“It’s one of those industries where you’d say that the effects of deregulation on a truck driver are not so positive and maybe negative,” Lewin said. “That’s different than the effects on companies, which I think are quite positive.”
Add the advancement of technology to the equation, and the talent effects of deregulation can be even more dramatic. Deregulation’s influence on competition can spark technological changes, according to James Peoples Jr., professor of economics in the College of Letters and Science at the University of Wisconsin at Milwaukee. In the railroad sector, for instance, deregulation has led to greater competition among transit companies and the need to remove inefficiencies in the systems, Peoples said. The companies that survived the competition had CEOs who adapted to market forces to meet performance metrics, using technology to do so.
“Deregulation helps promote the growth of technology,” Peoples said. “That growth of technology then requires better skills from the C-Suite and better skills from the rank-and-file.”
Switch operators, for instance, are no longer needed at these companies because the process is now automated. Firemen who used to feed the train’s engine, wood or coal are now mostly replaced by use of diesel engines. “A lot of jobs that were good-paying jobs with low education requirements are gone, not just because of deregulation, but because of technology,” Peoples said.
Additionally, if regulation of a product or industry increases the cost of a product, then it could lead to fewer people needed to produce that item. However, this can also lead to the rise of other industries, creating a differential employment effect. With globalization adding to the increase in competition that deregulation brings, the landscape becomes even more crowded. Add to that the increasing advancement of technology, and doing business becomes even more difficult.
Lauren Dixon is an associate editor at Talent Economy. To comment, email firstname.lastname@example.org.