Credit Reports as Résumés: The Incidence of Pre-Employment Credit Screening

Alexander Bartik, Scott T Nelson

Research output: Working paper

Abstract

We study recent bans on employers' use of credit reports to screen job applicants – a practice that has been popular among employers, but controversial for its perceived disparate impact on racial minorities. Exploiting geographic, temporal, and job-level variation in which workers are covered by these bans, we analyze these bans' effects in two datasets: the panel dimension of the Current Population Survey (CPS); and data aggregated from state unemployment insurance records. We find that the bans reduced job-finding rates for blacks by 7 to 16 log points, and increased subsequent separation rates for black new hires by 3 percentage points, arguably contrary to the bans' intended effects. Results for Hispanics and whites are less conclusive. We interpret these findings in a statistical discrimination model in which credit report data, more so for blacks than for other groups, send a high-precision signal relative to the precision of employers' priors.
Original languageEnglish (US)
Number of pages49
DOIs
StatePublished - Apr 8 2016

Publication series

NameMIT Department of Economics Graduate Student Research Paper 16-01

Keywords

  • Unemployment
  • Employment Discrimination
  • Signaling
  • Hiring
  • Firing
  • Policy Analysis

Fingerprint Dive into the research topics of 'Credit Reports as Résumés: The Incidence of Pre-Employment Credit Screening'. Together they form a unique fingerprint.

  • Cite this

    Bartik, A., & Nelson, S. T. (2016). Credit Reports as Résumés: The Incidence of Pre-Employment Credit Screening. (MIT Department of Economics Graduate Student Research Paper 16-01). https://doi.org/10.2139/ssrn.2759560