Dive Brief:
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Nationwide, groups are seeking to ban employers from running credit checks on job applicants in order to reduce discrimination. But the doing so may be negatively affecting black job-seekers, according to the Washington Post.
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Interestingly, those behind the ban believe credit checks hurt minorities, who disproportionately have low credit scores. And since 2007, eleven states, as well as Chicago and New York City, have passed such laws, the Post reports.
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A new study from Robert Clifford, an economist at the Boston Fed, and Daniel Shoag, an assistant professor at Harvard’s Kennedy School, however, has found that when employers are blocked from checking financial records, black job-seekers become more likely to be passed over for open jobs.
Dive Insight:
The Post does report that states with credit-check bans have made it easier for bad credit history job seekers to land jobs (or at least compete for them). But black job-seekers have not benefited at the same level. According to the study, if one job opening will draw hundreds of applications, hiring managers use bad credit as a way to reduce the overall candidate pool. When that option becomes illegal, they will look for another ways to thin the labor pool.
For example, in states with credit check bans, job postings were more likely to ask for a bachelor’s degree and additional years of experience. Black job-seekers might be disadvantaged in credit check banning states because they "could not meet those increased education and experience requirements," the Post notes. Or, maybe employers simply became tougher on black applicants without verified credit histories and "assumed the worst."
“This reflects a general movement of legislators monkeying around with the hiring process without thinking about the consequences,” Shoag told the Post.
