Is Special Regulatory Treatment for Small Businesses Working as Intended?

S mall businesses are a critical feature of the U.S. political and economic landscape. Businesses with fewer than 500 employees account for almost half of all gross revenues generated by U.S. businesses, employ half of all private-sector workers, and generate between 60 and 80 percent of net new jobs. Many policymakers, interested in supporting small businesses and entrepreneurship, have been concerned that some regulations, rules, and government policies place a disproportionate burden on small fi rms and entrepreneurs, due, for example, to the signifi cant fi xed costs that can be associated with compliance. As a result of such concerns, small businesses often receive special regulatory treatment, such as exemptions from legislation or extended deadlines for compliance. However, policymakers’ desire to support small businesses through such special treatment can come into confl ict with the interest in addressing the concerns that led to regulation or policy in the fi rst place. For example, broad exemptions for small businesses to a regulation can mute the regulation’s eff ectiveness or its primary purpose. In addition, in spite of its intentions, special regulatory treatment may not, in fact, help small businesses. Th ere is a need for a better understanding of the impact of policy and regulation on smaller businesses. Much of what is currently known about the interactions among regulation, litigation, and business stems from research on large fi rms. Special regulatory treatment for small businesses has not often been studied objectively, and it is unknown whether such treatment is actually benefi ting small businesses or producing other outcomes promised by proponents. Recent RAND research sponsored by the Kauff man-RAND Institute for Entrepreneurship Public Policy (KRI) is attempting to address this need through analysis of the regulatory and Research Brief