Pouring Cold Water on Deregulation Fears: The Labor Market Effects of Kansas's 3.2\% Beer Law Repeal

Abstract

Does alcohol market deregulation destroy small business jobs? I exploit Kansas's April 2019 repeal of its 82-year-old "3.2% beer law," which had restricted grocery stores to selling only low-alcohol beer while granting liquor stores a monopoly on full-strength beer. Using a difference-in-differences design comparing Kansas to neighboring states with American Community Survey microdata from 2015–2022, I find suggestive evidence that beverage retail (liquor store) employment declined after deregulation, with point estimates suggesting an 11% reduction from Kansas's pre-reform baseline. However, with only five state clusters, wild cluster bootstrap inference indicates these effects are not statistically distinguishable from zero. I also find no significant effects on overall self-employment rates or grocery store employment. An important methodological lesson emerges: conventional standard errors can overstate precision with few clusters, leading to false claims of significance. The results suggest that while deregulation may have affected the protected incumbent industry, the evidence is too imprecise to draw strong causal conclusions—a common limitation of state-level policy evaluations with limited geographic variation.