Deleting a Signal: Evidence from Pre-Employment Credit Checks

81 Pages Posted: 6 Dec 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: December 1, 2019

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 3 percentage points and increase involuntary separations for black new hires by 4 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, Hiring, Firing, Signaling

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

Suggested Citation

Bartik, Alexander and Nelson, Scott, Deleting a Signal: Evidence from Pre-Employment Credit Checks (December 1, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-137, Available at SSRN: https://ssrn.com/abstract=3498458 or http://dx.doi.org/10.2139/ssrn.3498458

Alexander Bartik

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

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

Scott Nelson (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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