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

Author

Listed:
  • Kristle Cortes

    (Federal Reserve Bank of Cleveland)

  • Andrew Glover

    (The University of Texas at Austin)

  • Murat Tasci

    (Federal Reserve Bank of Cleveland)

Abstract

Lenders have traditionally used credit reports to measure a borrower’s default risk, but credit agencies also market reports to employers for use in hiring. Since the onset of the Great Recession, eleven state legislatures have restricted the use of credit reports in the labor market. We document that county-level unemployment rose faster in states that restricted employer credit checks and counties with more sub-prime citizens experienced larger increases in the unemployment rate than average. Using data from individual credit reports, we find that access to credit declines and delinquencies increase significantly after the state-level policy changes, especially for subprime borrowers.

Suggested Citation

  • Kristle Cortes & Andrew Glover & Murat Tasci, 2017. "The Unintended Consequences of Employer Credit Check Bans on Labor and Credit Markets," Koç University-TUSIAD Economic Research Forum Working Papers 1702, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:1702
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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.
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    4. 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.
    5. 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.
    6. 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.
    7. Robert Clifford & Daniel Shoag, 2016. "“No more credit score”: employer credit check bans and signal substitution," Working Papers 16-10, Federal Reserve Bank of Boston.
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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

    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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