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

Author

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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 162502, Federal Reserve Bank of Cleveland, revised 10 Nov 2016.
  • 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

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    1. 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.
    2. 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.
    3. Kyle Herkenhoff & Gordon Phillips & Ethan Cohen-Cole, 2016. "How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output," Working Papers 16-25, Center for Economic Studies, U.S. Census Bureau.
    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. Will Dobbie & Paul Goldsmith-Pinkham & Neale Mahoney & Jae Song, 2016. "Bad credit, no problem? Credit and labor market consequences of bad credit reports," Staff Reports 795, Federal Reserve Bank of New York, revised 01 May 2017.
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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. Marieke Bos & Emily Breza & Andres Liberman, 2018. "The Labor Market Effects of Credit Market Information," Review of Financial Studies, Society for Financial Studies, vol. 31(6), pages 2005-2037.
    3. 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.

    More about this item

    Keywords

    unemployment rate; credit check; credit score;

    JEL classification:

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

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