Do bans on credit checks in hiring work as intended?

…one of the hottest ideas among lawmakers right now is to ban employers from running credit checks on job applicants. Since 2007, eleven states, as well as Chicago and New York City, have passed such laws….

But a new study from Robert Clifford, an economist at the Boston Fed, and Daniel Shoag, an assistant professor at Harvard’s Kennedy School, finds that when employers are prohibited from looking into people’s financial history, something perverse happens: African-Americans become more likely to be unemployed relative to others….

“Employers have many screening measures to narrow down who they want to hire,” Shoag says. “If you take one away, they’ll put more weight on the others.” … Whatever the new criteria were, they seem to have put black applicants at a disadvantage.

[Jeff Guo, Washington Post “WonkBlog”] Shoag gets the best line of the piece: “This reflects a general movement of legislators monkeying around with the hiring process without thinking about the consequences.” A contrary view: Robert Hiltonsmith and Sean McElwee, US News.

One Comment

  • There are thousands of potential reasons you might hire someone or not hire them. So long as most of those reasons are legal, it’s easy for an employer to make one up to cover whatever decision he’s made.

    So the only way to make any discrimination law actually work is to enact the system they have in Germany — where the unemployment agency sends people to interviews in the order they applied for benefits, and every refusal-to-hire is followed by a hearing in which the employer must justify his decision, or be forced to hire the applicant.

    So either enact that system, or scrap discrimination laws entirely. Anything in between is merely a waste of time and effort on wishful thinking.