Can Employer Credit Checks Create Poverty Traps?
AbstractAccording to a Survey by the Society for Human Resource Man- agement (2010), 60% of human resource representatives interviewed in 2009 indicated that the companies they worked for ran credit checks on potential employees. In this paper, we explore how credit checks (observable signals based on an agentâ€™s unobservable type) may af- fect outcomes in a matching model of the labor market. We show that it may be individually optimal for employers to use such signals to make hiring/firing/compensation decisions. Such decisions how- ever may have important implications for household welfare inducing a poverty trap. The analysis can shed light on the consequences of a law (the Equal Employment for All Act (H.R. 3149)) prohibiting the use of credit information in employment decisions which currently sits before Congress.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 875.
Date of creation: 2013
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