President-elect Joe Biden has got plenty on his plate to worry about. Covid, recession, uniting a divided country, rebuilding relationships with our allies. But if he wants a strong job recovery, he might want to make sure that someone on his staff is keeping an eye on the new draft legislation that the European Union just announced, the Digital Markets Act (DMA). If it goes into effect as written, it would create a new category of “gatekeepers” that targets the largest U.S. tech firms with extensive new regulations and the potential for huge fines, up to 10% of global revenues.
It will take a year or more before these draft regulations go into effect. But when they do, the new EU regulations may hold back the U.S. economic recovery that Biden and his team are counting on. The problem: Jobs generated by the tech/ecommerce sectors were a key part of the positive US labor market story before the pandemic. Many of those jobs are “export-oriented,” in the sense of being tied to the global leadership of the big tech companies. So when the EU imposes tighter controls on tech firms in Europe, that’s likely to slow the job recovery at home as well.
How important is the tech/ecommerce sector for job growth? Our analysis of U.S. job data shows that tech/ecommerce sector jobs grew by almost 19 percent from 2016 to 2019, almost four times the 5 percent growth of overall private sector jobs. That means the tech/ecommerce industries directly accounted for 791,000 net new jobs from 2016 to 2019, without even accounting for spillover effects. This total includes App Economy jobs, ecommerce fulfillment jobs, cloud computing jobs, database jobs, and customer tech support jobs.
During the pandemic, the tech/ecommerce sector has continued to hire while the rest of the economy has contracted. From October 2019 to October 2020, the tech/ecommerce sector gained 200,000 jobs while the rest of the private sector lost 8 million jobs. Historically, the pattern is that the particular industries which continue to grow during a recession are also the ones that lead the subsequent recovery. This is an unusual sort of recession, but if the pattern holds, the tech/ecommerce industries will be a key force propelling the Covid rebound.
But here’s the issue with the EU regulations. Many of the tech/ecommerce jobs in the U.S. are export-based, in that they are strongly tied to overseas sales. The big tech companies make huge people-intensive investments in research and product development at home which help support their overseas operations. To the degree that the EU regulations reduce the profitability of overseas operations of big U.S. tech firms, that will reduce employment at home, just like any restrictions on exports.
We will not go into detail on the new EU regulations here. It’s important to note, however, that if they are implemented in their current form, they would impose a long list of new obligations on “gatekeepers.” The definition of “gatekeepers” appears to be broad:
Providers of core platform providers can be deemed to be gatekeepers if they: (i) have a significant impact on the internal market, (ii) operate one or more important gateways to customers and (iii) enjoy or are expected to enjoy an entrenched and durable position in their operations.
However, because of the particular thresholds that are being proposed, it appears that the “gatekeeper” designation is only going to apply to American firms.
As we consider the domestic implications of the EU regulation, it’s worthwhile to say a bit about the political impact of tech/ecommerce jobs in the aftermath of the presidential election. Our calculations show that jobs in the tech/ecommerce sector grew at roughly the same rate in the states that Biden won (19% from 2016 to 2019) versus the states that Trump won (18.7% over the same stretch) (Figure 1). In other words, both Biden states and Trump states have been benefiting from the global presence of the tech/ecommerce sector, with tech/ecommerce job growth far faster than that of the private sector in both cases.
| Figure 1: Broad-based Tech/Ecommerce Job Gains (percentage change, 2016-19) | ||
| Tech/ecommerce jobs | Private sector jobs | |
| Biden states | 19.0% | 4.7% |
| Trump states | 18.7% | 5.0% |
| *NAICS 4541, 493, 5112, 518, 519, 5415.
Data: Bureau of Labor Statistics |
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From another perspective, the contribution of the tech/ecommerce sector to overall job growth has been rising in both the Biden and Trump states. For example, in the Trump states, the share of net private sector job creation coming from tech/ecommerce rose from 8% in the 2013-2016 period to 10.4% in the 2016-2019 period. The Biden states show a similar trend. In both cases that upward arc would likely be interrupted by the EU’s implementation of the DMA, undercutting a key industry needed for recovery from the Covid downturn.
