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

58 Pages Posted: 8 Apr 2016 Last revised: 6 Nov 2018

See all articles by Alexander Bartik

Alexander Bartik

Massachusetts Institute of Technology (MIT), Department of Economics, Students

Scott Nelson

Massachusetts Institute of Technology (MIT), Department of Economics, Students

Date Written: March 7, 2016

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 quarterly job-finding rates by 2.4 percentage points, and increased subsequent separation rates for black new hires by 3 percentage points. Results for Hispanics and whites are less conclusive. We interpret these findings in a statistical discrimination model in which credit report data, more for blacks than for other groups, send a high-precision signal relative to the precision of employers' priors.

Keywords: Unemployment, Employment Discrimination, Signaling, Hiring, Firing, Policy Analysis

JEL Classification: J680, J780, M510, J630, D040, D820

Suggested Citation

Bartik, Alexander and Nelson, Scott, Credit Reports as Résumés: The Incidence of Pre-Employment Credit Screening (March 7, 2016). MIT Department of Economics Graduate Student Research Paper 16-01. Available at SSRN: https://ssrn.com/abstract=2759560 or http://dx.doi.org/10.2139/ssrn.2759560

Alexander Bartik (Contact Author)

Massachusetts Institute of Technology (MIT), Department of Economics, Students ( email )

Cambridge, MA
United States

HOME PAGE: http://economics.mit.edu/grad/abartik

Scott Nelson

Massachusetts Institute of Technology (MIT), Department of Economics, Students ( email )

50 Memorial Drive
Bldg E52
Cambridge, MA 02142
United States

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