Deleting a Signal: Evidence from Pre-Employment Credit Checks

76 Pages Posted: 8 Apr 2016 Last revised: 28 Sep 2019

See all articles by Alexander Bartik

Alexander Bartik

University of Illinois at Urbana-Champaign - Department of Economics

Scott Nelson

University of Chicago - Booth School of Business

Date Written: March 7, 2016

Abstract

We study the removal of information that favors one group over another. Empirically, we focus on banning the use of credit reports to screen job applicants, a practice alleged to disadvantage minority groups with poorer average credit. We estimate these bans decrease job-finding rates for blacks by 2.4 percentage points and increase involuntary separations for black new hires by 3 percentage points. Theoretically, we show the incidence of removing information depends on the information's relative precision, not necessarily group averages. We estimate credit checks benefit black job seekers because other screening tools, such as interviews, are noisier signals for blacks.

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

JEL Classification: J68, J78, M51, J63, D04, D82

Suggested Citation

Bartik, Alexander and Nelson, Scott, Deleting a Signal: Evidence from Pre-Employment Credit Checks (March 7, 2016). MIT Department of Economics Graduate Student Research Paper 16-01; Chicago Booth Research Paper No. 19-23. Available at SSRN: https://ssrn.com/abstract=2759560 or http://dx.doi.org/10.2139/ssrn.2759560

Alexander Bartik (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

Scott Nelson

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
595
Abstract Views
3,870
rank
45,239
PlumX Metrics