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The Unintended Consequences of Employer Credit Check Bans on Labor and Credit Markets

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  • Kristle Romero Cortes
  • Andrew Glover
  • Murat Tasci

Abstract

Since the Great Recession, 11 states have restricted employers' access to the credit reports of job applicants. We document that county-level vacancies decline between 9.5 percent and 12.4 percent after states enact these laws. Vacancies decline significantly in affected occupations but remain constant in those that are exempt, and the decline is larger in counties with many subprime residents. Furthermore, subprime borrowers fall behind on more debt payments and reduce credit inquiries postban. The evidence suggests that, counter to their intent, employer credit check bans disrupt labor and credit markets, especially for subprime workers.

Suggested Citation

  • Kristle Romero Cortes & Andrew Glover & Murat Tasci, 2016. "The Unintended Consequences of Employer Credit Check Bans on Labor and Credit Markets," Working Papers 16-25R2, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:162502
    DOI: 10.26509/frbc-wp-201625r2
    Note: This paper was originally published in November of 2016 and a revision was published in October of 2017. This is the second revision of the paper.
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    References listed on IDEAS

    as
    1. Kyle F Herkenhoff, 2019. "The Impact of Consumer Credit Access on Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(6), pages 2605-2642.
    2. Clifford, Robert & Shoag, Daniel, 2016. ""No More Credit Score": Emplyer Credit Check Bans and Signal Substitution," Working Paper Series 16-008, Harvard University, John F. Kennedy School of Government.
    3. Will Dobbie & Paul Goldsmith‐Pinkham & Neale Mahoney & Jae Song, 2020. "Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports," Journal of Finance, American Finance Association, vol. 75(5), pages 2377-2419, October.
    4. Tomaz Cajner & David Ratner, 2016. "A Cautionary Note on the Help Wanted Online Data," FEDS Notes 2016-06-23, Board of Governors of the Federal Reserve System (U.S.).
    5. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," NBER Working Papers 22274, National Bureau of Economic Research, Inc.
    6. Marianne Bertrand & Sendhil Mullainathan, 1999. "Is There a Discretion in Wage Setting? A Test Using Takeover Legislation," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 535-554, Autumn.
    7. Marianne Bertrand & Sendhil Mullainathan, 2003. "Enjoying the Quiet Life? Corporate Governance and Managerial Preferences," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1043-1075, October.
    8. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
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    Cited by:

    1. Kyle Herkenhoff, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," 2016 Meeting Papers 781, Society for Economic Dynamics.
    2. Andres Liberman & Christopher A. Neilson & Luis Opazo & Seth Zimmerman, 2019. "Equilibrium Effects of Asymmetric Information on Consumer Credit Markets," Working Papers 2019-7, Princeton University. Economics Department..
    3. Marieke Bos & Emily Breza & Andres Liberman, 2018. "The Labor Market Effects of Credit Market Information," The Review of Financial Studies, Society for Financial Studies, vol. 31(6), pages 2005-2037.
    4. Anthony M. Marino, 2020. "Banning information in hiring decisions," Journal of Regulatory Economics, Springer, vol. 58(1), pages 33-58, August.
    5. Ballance, Joshua & Clifford, Robert & Shoag, Daniel, 2020. "“No more credit score”: Employer credit check bans and signal substitution," Labour Economics, Elsevier, vol. 63(C).
    6. Andres Liberman & Christopher Neilson & Luis Opazo & Seth Zimmerman, 2018. "The Equilibrium Effects of Information Deletion: Evidence from Consumer Credit Markets," NBER Working Papers 25097, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    unemployment rates; credit check; credit scores;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)

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