Saturday, November 24, 2012

How New Regulations Cost Us Money



A frequent complaint about new regulations, other than additional red tape, restrictions and limitations on our actions, is that somehow regulations will cost us money. It's sometimes hard to visualize how that can happen when we talk about regulations in the abstract. Here's a good example of actual regulations that are putting unnecessary burdens on the day care industry (of all things): 


In the 2005-2006 legislative session of the Michigan House of Representatives, there was uproar by the daycare provider community when the Michigan Department of Human Services (DHS) held hearings regarding the implementation of numerous and costly new daycare regulations. . . . . While some of the new regulations were needed for safety reasons, many were punitive and costly. The Michigan DHS implemented most of them anyway. . . . 

What are many of these new educational requirements and why are they so costly? The new regulations include 'early education' academic requirements that the providers (now called teachers) must have. "While Gov. Bev Perdue announced recently that there would be no new rules allowed to encumber businesses, a universally applauded measure to help expedite the economic recovery effort, the wheels were already in motion for a new and particularly onerous regulation on childcare providers, known as Early Educator Certification (EEC). This new regulation will likely have a negative impact on the cost and availability of childcare in North Carolina." . . . .

These are the recommendations of the National Education Association to the federal government, "Lead teachers in private centers hold a minimum of an associate's degree in child development or early childhood education, all teaching assistants in private childcare settings hold a minimum of a child development associate (CDA) or a state issued certificate that meets or exceeds CDA requirements." . . .

On top of requiring these providers to go back to school and spend possibly thousands of dollars to obtain a degree to teach babies and toddlers, the states are actually decreasing reimbursement rates to providers who do not conform to the new educational regulations such as the case in Wisconsin. Daycare providers who are currently only rated as a two star and do not take the necessary educational classes mandated by the government to move up in the rating system may be forced to close their doors. . . . Some states, such as Massachusetts and Michigan, are also forcing the in-home daycares into unions. They are forced to pay dues whether they want to or not, which also decreases daycare provider's incomes.


There seem to be two things at play here: First, more regulations mean more requirements that have to be met and that costs money for such things as certification and education. With higher costs to run a business, business owners have to raise prices and increase customers. Second, if businesses have more costs and cannot make ends meet, they may be forced to close their doors.

Laws create incentives for human behavior - the incentive here seems to be to drive people out of business, which in turn decreases choice and may force parents into government provided care. While day care should obviously be a safe place for children, parents can choose what level of education they want provided to their children and the corresponding fee they want to pay for that care. It is not up to the state to mandate education levels of care providers beyond that which is required to keep the children in a safe environment. The higher costs of the day care owner are passed on to the parent, and this is how more unnecessary regulations are detrimental to freedom of choice in the market place.

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