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How GDPR Became Europe’s Tech Job-Killer

November 26, 2018

The European Union seems to have shot itself in the foot.

Its efforts to protect your data from misuse likely cost the bloc tens of thousands of jobs in the fast-growing technology sector, according to a recent study. Worse still, there may be more jobs carnage to come.

In May the E.U. rolled out the GDPR (General Data Protection Regulation,) which was meant to stop the misuse of personal data by technology companies. Whether it achieved that goal isn’t clear, but the new regulations did come with a cost.

“We found evidence suggesting negative and pronounced effects following the rollout of GDPR,” states the working paper titled “The Short-run Effects of GDPR on Technology Venture Investment.” The report was distributed by the National Bureau of Economic Research and was authored by Jian Jia and Liad Wagman, (both Illinois Institute of Technology) and Ginger Zhe Jin from the University of Maryland.

Using data from CrunchBase, the trio focused specifically on venture financing in 24 EU member countries over the period July 2017 to September 2018. (CrunchBase says its goal is “to be the master record of data on the world’s most innovative companies.”)

Jobs lost?

“[W]e do find that the negative effects of GDPR on technology investment appear particularly pervasive for nascent, 0-3 year old ventures,” the report states. These firms are startups, which often have the potential to be the future Apples, Googles, and Facebooks with all the job-creating power that comes with fast growth.

Unfortunately, the GDPR cost those European startups as many as 39,000 tech jobs, the report says. The range presented by the authors is between 3,604 to 38,931.

It could be even worse.

[O]ur dataset is not a complete universe of venture funding, but rather a partial snapshot of primarily venture capital and angel investments in technology ventures. As such, our results must be taken with a bit of caution, given that the effects we observe may be incomplete.

In other words, the estimates may be low because the authors didn’t have access to all the data they might have wanted. The report continues by stating the job-killing may last longer:

[T]he potential for job losses may well extend and intensify past our four months post-GDPR dataset period, in which case the effect on jobs is understated.

The news comes at an inopportune time for Europe’s leaders.

Europe needs all the jobs it can get. The unemployment rate in the countries in the single currency area (the so-called eurozone) is a staggering 8.4%, according to data collated by Trading Economics. That’s more than twice the 4% rate in the U.S.

Meanwhile, the EU’s largest economy, Germany, is slowing down fast. Its economy shrank by 0.2% in the third quarter, again the data is from Trading Economics. That’s the first quarter of subzero growth since 2015. Worse still, if Germany’s economy shrinks again this quarter, then it will have officially fallen into a recession, at least by the definition most economists use: two back-to-back quarters of declining economic output.

Simon Constable | Author | Broadcaster | Journalist | Commentator | Speaker.

I’m a fellow at the Johns Hopkins Institute for Applied Economics, Global Health and the Study of Business Enterprise.

My first book, The WSJ Guide to the 50 Economic Indicators that Really Ma… MORE

Simon Constable is a writer, economics commentator, and a fellow at The Johns Hopkins Institute for Applied Economics, Global Health and the Study of Business Enterprise.

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