New Statistical Tests for Detecting Disparate Impact Arising From Two-Stage Selection Processes

Statistical evidence of a significant difference between the performance of a protected group and the majority on a preemployment exam is often critical when a court decides whether the exam has a disparate impact, that is, whether the exam has a disproportionate adverse impact on minority candidates. In many cases, the hiring or promotion process consists of two steps. Since disparate impact can occur at each step, parties submitting evidence may use statistical tests at each stage without accounting for a potential multiple comparisons problem. Because different courts have focused on data concerning either one or the other step or a composite of both, they have reached opposite conclusions when faced with similar data. After illustrating the issues, two two-step tests are recommended to alleviate the problem. The large sample properties of these tests are obtained. A simulation study shows that in most situations, the new tests have higher power than the ones in current use.