By Dan Andrews, Joana Duran-Franch and Sébastien Turban, OECD Economics Department.
Over recent years, governments across the OECD have expressed concerns that “red tape” is hampering economic activity. Concerns that have been supported by the recent OECD Simplifying for Success survey, in which business organisations report that regulatory requirements and compliance now stand as the most significant challenge for firms, ahead of difficulties in finding workers with the right skills, tax pressures, or geopolitical instability. And crucially, firms perceive that the regulatory burden is mounting over time.
The latest OECD Economic Outlook, in its thematic chapter Time for a Regulatory Reset? (OECD, 2025a), confirms that this is more than a feeling – and that it matters for growth. Labour productivity growth has slowed across most OECD countries since the late 1990s, due to weak business investment (OECD, 2025b) and diminished economic dynamism, which reflects the declining likelihood of new firms to enter and scale-up, workers to change jobs and scarce resources to be reallocated towards more productive firms (Figure 1). Some of this is due to benign forces such as ageing populations or the rise of firm-specific human capital in an intangible-driven economy. But growing regulatory frictions are also part of the story.
Figure 1. Productivity and economic dynamism have slowed down in the last 20 years
Note: In Panel B, the figure reports the average of within-country–industry cumulative changes in percentage points relative to 2004. Estimates are based on data for 12 countries (Austria, Belgium, Finland, France, Germany, Italy, Hungary, Portugal, Slovenia, Spain, Türkiye and the United Kingdom) over the period 2004–2022.
Source: OECD Economic Outlook 118 database; Calvino, F., C. Criscuolo and R. Verlhac (2020); Cho, W. et al. (2024); and OECD calculations.
While regulation is essential, the way we regulate matters for growth and dynamism
Regulations are indispensable for correcting market failures, protecting health and safety, safeguarding the environment and addressing distributional concerns. The question is whether these objectives can be met with fewer distortions and lower compliance costs – freeing up talent and capital for innovation and growth. And there is good reason to believe they can.
The growing regulatory environment has absorbed scarce labour resources
A central contribution of the chapter is to develop a new task-based measure of the real resources used to comply with regulation, as in Trebbi and Zhang (2022) and Trebbi, Zhang and Simkovic (2023). The idea is simple: most jobs include some tasks that are linked to regulation compliance – completing forms, reporting, audits, inspections, ensuring legal or standards compliance, and so on. By identifying these tasks across occupations, we estimate the share of wages and employment devoted to regulatory compliance in OECD countries for which data are available.
These new measures show that resources devoted to regulatory compliance are significant and growing (Figure 2): In Europe, regulatory tasks accounted for an average of 3.9% of total employment in 2023, up from 3.7% in 2011. This share is higher than in Australia – where the increase has also been smaller over the same period – and notably higher than in the United States, where regulatory tasks account for 3.2% of total employment. In 2024, an estimated 4.2% of the US wage bill was spent on regulation-related tasks (up from 4.0% in 2012), equivalent to around USD 521 billion or 1.8% of GDP. But there is considerable variation across US states, ranging from 3.5% in Idaho to closer to 5% in some states such as New Jersey.
Figure 2. The share of employment devoted to regulatory tasks has risen in selected OECD countries
A. Share of employment
B. Share of US state and territories’ wages spent on regulatory tasks in 2012 and 2023
Note: In Panel A, the index represents the employment-weighted sum of occupations’ regulation task intensity scores in the three regions. “Europe” refers to the average score of EU countries except Bulgaria, Malta, and Slovenia, and includes the United Kingdom (data available up to 2019), Iceland, Norway, and Switzerland. In Panel B, the index represents a similar, wage-weighted sum. The US unweighted average is in blue. The values for the District of Columbia are not displayed, for readability: the numbers were 7.8% in 2012 and 7.5% in 2023.
Source: Andrews, Turban and Tyros (forthcoming).
When more rules mean less dynamism
Using variation within US states over time, we find that higher regulatory compliance costs are linked to workers producing less per hour and to new businesses making up a smaller share of employment. In detail, long-difference regressions for US states over 2012–2023 show that the average increase in compliance costs is associated with roughly 0.5% lower labour productivity and a 0.4 percentage point drop in the employment share of young firms. The estimates also suggest the effects build up gradually over time. These results are consistent with a growing body of evidence linking regulatory accumulation to slower GDP and productivity growth in the United States, Europe and Australia (Coffey, McLaughlin and Peretto, 2020; Dawson and Seater, 2013; McLaughlin and Wong, 2024; Pellegrino and Zheng, 2023).
Calling for a regulatory reset: Smarter rules for stronger growth
Against this backdrop, the chapter outlines a plan for a “regulatory reset”. While the specific recommendations vary by country – as highlighted by Chapter 3 of the Economic Outlook and explained in a recent blogpost – a clear common message emerges: this is not about deregulating across the board, but about regulating in a smarter, more dynamic way. The chapter identifies five priorities that governments can act on today:
- Simplify and manage regulations systematically. Use non-regulatory tools where appropriate and make regulatory governance more agile and evidence-based. A key step includes managing the stock of regulations through systematic reviews, which currently occur in fewer than one-third of OECD countries (OECD, 2020; OECD, 2025d). Increasing legal certainty and predictability is necessary too: frequent changes, complex drafting, and inconsistent enforcement remain among the top complaints from businesses in the OECD Simplifying for Success surveys.
- Make product and labour market regulations more dynamism-friendly. Pro-competitive product market regulation remains a powerful lever for growth, especially in services. Recent OECD evidence suggests that the slowdown in deregulation in network sectors – like energy, transport, and communications – explains up to one-sixth of the post-2005 productivity slowdown. At the same time, easing product market regulations in retail trade and professional services could boost labour productivity significantly. That said, not all regulation harms dynamism and targeted rules can actually enhance it, for example, by addressing the excessive use of non-compete clauses or tightening safeguards against excessive lobbying.
- Redesign housing regulation to promote affordability and mobility. Restrictive planning and rental regulations can depress residential construction, push up rents and house prices over time, and reduce labour mobility by locking in tenants. The chapter argues for simpler, more flexible land-use and spatial planning, with fewer barriers to densification and better co-ordination across levels of government, and a gradual phasing-out of strict rent controls.
- Regulatory frameworks should harness the productivity benefits of digitalisation and AI. Large-scale AI adoption relies on tangible infrastructure and intangible assets, both shaped by regulation – from data protection and consumer rules to competition and trade policy. The key regulatory challenge is striking the right balance: protecting data without stifling innovation, avoiding fragmented or overlapping rules that raise uncertainty and compliance costs, and ensuring competition and openness in AI markets.
- Confront regulatory barriers to energy abundance. As electrification accelerates and AI and data centres push up power demand, renewables have become some of the cheapest sources of new generation. Yet regulatory barriers are slowing investment and deployment (OECD, 2025c). Where these bottlenecks have been tackled – for example through emergency permitting reforms in parts of Europe – renewable deployment has accelerated markedly. The chapter argues for modernising energy regulation to align with decentralised, flexible systems and to make permitting, grid access and remuneration more transparent and predictable.
The bottom line: done well, a regulatory reset can revive economic dynamism and unlock productivity growth, while still delivering on societies’ environmental, social and safety objectives. We should not always regulate less, but we must regulate better.
References
Andrews, D., S. Turban and S. Tyros (forthcoming), “Regulatory compliance costs and productivity: new task-based evidence”, OECD Working Papers.
Calvino, F., C. Criscuolo and R. Verlhac (2020), “Declining business dynamism: Structural and policy determinants”, OECD Science, Technology and Industry Policy Papers, No. 94, OECD Publishing, Paris, https://doi.org/10.1787/77b92072-en
Cho, W. et al. (2024), “Diagnosis and policy action for sustainable and inclusive productivity growth”, OECD Science, Technology and Industry Working Papers, No. 2024/7, OECD Publishing, Paris, https://doi.org/10.1787/1668f250-en.
Coffey, B., P. McLaughlin and P. Peretto (2020), “The cumulative cost of regulations”, Review of Economic Dynamics, Vol. 38, pp. 1-21, https://doi.org/10.1016/j.red.2020.03.004.
Dawson, J. and J. Seater (2013), “Federal regulation and aggregate economic growth”, Journal of Economic Growth, Vol. 18/2, pp. 137-177, https://doi.org/10.1007/s10887-013-9088-y.
McLaughlin, P. and J. Wong (2024), “The Causal Effect of Regulations on Economic Growth: Evidence from the US States”, Mercatus Center Working Paper, https://www.mercatus.org/research/working-papers/causal-effect-regulations-economic-growth-evidence-us-states
OECD (2025), “Simplifying for success: Insights from OECD surveys”, Prepared for the OECD High-level Symposium: 17-18 November 2025, OECD%20S4S%20Symposium%20Brief_Simplifying%20for%20success_Insights%20from%20OECD%20surveys.pdf.
OECD (2025a), OECD Economic Outlook, Volume 2025 Issue 2: Resilient Growth but with Increasing Fragilities, OECD Publishing, Paris, https://doi.org/10.1787/9f653ca1-en.
OECD (2025b), OECD Economic Outlook, Volume 2025 Issue 1: Tackling Uncertainty, Reviving Growth, OECD Publishing, Paris, https://doi.org/10.1787/83363382-en.
OECD (2025c), Diagnostic Toolkit for Reducing Regulatory Barriers to Solar, Wind and Pumped Hydro Storage in European Union: Empowering Policymakers at National, Regional and Local Levels, OECD Publishing, Paris, https://doi.org/10.1787/15f4aed4-en.
OECD (2025d), OECD Regulatory Policy Outlook 2025, OECD Publishing, Paris, https://doi.org/10.1787/56b60e39-en
OECD (2020), Reviewing the Stock of Regulation, OECD Best Practice Principles for Regulatory Policy, OECD Publishing, Paris, https://doi.org/10.1787/1a8f33bc-en.
Pellegrino, B. and G. Zheng (2023), “Quantifying the Impact of Red Tape on Investment: A Survey Date Approach”, SSRN Electronic Journal, https://doi.org/10.2139/ssrn.4593370.
Trebbi, F. and M. Zhang (2022), The Cost of Regulatory Compliance in the United States, National Bureau of Economic Research, Cambridge, MA, https://doi.org/10.3386/w30691.
Trebbi, F., M. Zhang and M. Simkovic (2023), “The Cost of Regulatory Compliance in the United States”, SSRN Electronic Journal, https://doi.org/10.2139/ssrn.4331146