The Innovation Cost of Privacy: How State Data Privacy Laws Reshape the Technology Sector

Abstract

Between 2020 and 2025, nineteen U.S.\ states enacted comprehensive consumer data privacy laws modeled on California's landmark CCPA, creating substantial new compliance obligations for firms that collect personal data. I exploit this staggered rollout—focusing on the thirteen states with at least one post-treatment quarter in the available data—to estimate the causal effect of privacy regulation on the technology sector using a Callaway-Sant'Anna difference-in-differences design with quarterly state-level data from the Bureau of Labor Statistics and Census Bureau. The identifying assumption—that Information sector trends in adopting and non-adopting states would have evolved similarly absent the laws—is supported by parallel pre-trends across all outcome measures. I find that privacy law adoption significantly reduces employment in Software Publishers (NAICS 5112)—the most data-intensive subsector (ATT = $-0.0767$, SE $= 0.0247$, $p < 0.01$)—an approximately 7.4% decline. Establishment counts show a gradual decline that intensifies over time, consistent with cumulative exit of marginal firms. Placebo tests on healthcare and construction industries confirm that effects are concentrated in data-intensive sectors. Randomization inference for the Software Publishers specification yields a $p$-value of 0.077, providing marginally significant non-parametric support for the primary finding. These results inform the active policy debate over a federal privacy framework by quantifying the sectoral costs of regulatory fragmentation.