To reduce inequality, lawmakers must end government-created burdens to entrepreneurship

Many Sacramento lawmakers have named reducing poverty and economic inequality among their top priorities this session.   They have unveiled a variety of proposals to address these issues, most center around new government programs, increased state spending, and new mandates.

As history has shown, bigger government usually doesn’t solve the problem.  If lawmakers really want to make a difference in reducing inequality, they should embrace reforms to increase entrepreneurship in the Golden State.  More entrepreneurship means more job opportunities including in economically-depressed communities, and more people being lifted out of poverty and into the middle class.

What is entrepreneurship?  It is starting or growing your own small business.  It can range from owning your own gardening or handiwork business, to running your own restaurant, to operating a salon, tax preparation firm or other service business, to taking a chance on an innovative idea you’ve invented.  Your business can range from having one employee (yourself!) to 40 or more.

Small businesses are critical to economic growth and new job opportunities.  From 2000-17, 8.4 million net new jobs were created at small businesses – 65.9 percent of the total jobs created nationwide.

Entrepreneurship is very risky.  Only 50 percent of new businesses last more than five years, according to the Small Business Administration.  Nor is it a fast ticket to “Easy Street.”  Of the 54 percent of small business owners who reported revenue as personal income, just five percent earned more than $250,000 per year, according to a 2012 survey.

That’s why it’s so important for policymakers to encourage people to be risk takers and start new businesses to better their own families and communities.  Unfortunately, despite their talk of reducing barriers to a better future, lawmakers have done the opposite – imposing a host of regulations and taxes that make entrepreneurship harder to attain.

The new Pacific Research Institute study “Breaking Down Barriers to Opportunity” explores some of these barriers that are hurting job opportunities, small business growth, and innovation.

Based on every measurement, state and federal regulations are thwarting individuals from starting and growing a small business or getting a good-paying job at an innovative new company.

California today ranks 49th among the 50 states for its labor regulatory burden.  Ironically, elected officials and state bureaucrats justify the enactment of these regulations as “protecting workers.”

Let’s look at how these supposedly pro-worker regulations impact them.

When government enacts policy hurdles to the sharing economy, individuals lose the freedom to be their own boss, earn significant income, and work desired schedules.

When strict occupational licensing laws are putting in place, individuals must complete 1,000 hours of training before he or she can work as a barber in some states.

And when workers compensation laws are out of control, annual workers compensation costs are 4 times as much in California as in North Dakota – forcing some businesses to scale back expansion and hiring plans.

The reality is government regulations drive away jobs, opportunity, and income potential.

Most troubling is the impact that regulations have in furthering income inequality and denying opportunities to communities who need them the most and who typically have little economic investment to start with.  A study from the Hamilton Project concluded that “entrepreneurship could play a prominent role in reducing the wealth gap between whites and African Americans . . . (and) may help close the gender wealth gap as well.”

Regulations not only take away job opportunities for working class and minority communities, but also increase their costs as consumers.  It’s no stretch that people must spend more to afford products and services whose costs were driven up by state regulations.

The bottom line – if policymakers are serious about wanting to increase opportunities in minority communities, the best way to do so is by breaking down government-created barriers to opportunity.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Scroll to Top