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The Costs and Benefits of Employer Credit Checks

Author

Listed:
  • Andrew Glover

    (University of Texas Austin)

  • Dean Corbae

    (University of Wisconsin)

Abstract

Credit agencies sell credit reports to employers for use in hiring. We build a model that rationalizes these products through adverse selection in credit and labor markets. Workers differ in their patience, with more patient workers repaying debts more frequently and accu- mulating more human capital. In equilibrium, a better credit history correlates with higher productivity. A poverty trap may arise: an unemployed agent with a low credit score has a low job finding rate, but cannot improve her credit score without a job. A policy that bans employer credit checks must balance their benefits (labor market effi- ciency and improved credit repayment incentives) against their costs (idiosyncratic poverty trap risk).

Suggested Citation

  • Andrew Glover & Dean Corbae, 2017. "The Costs and Benefits of Employer Credit Checks," 2017 Meeting Papers 447, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:447
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    References listed on IDEAS

    as
    1. Kartik Athreya & Xuan S. Tam & Eric R. Young, 2012. "A Quantitative Theory of Information and Unsecured Credit," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 153-183, July.
    2. Chatterjee, Satyajit & Corbae, Dean & Ríos-Rull, José-Víctor, 2008. "A finite-life private-information theory of unsecured consumer debt," Journal of Economic Theory, Elsevier, vol. 142(1), pages 149-177, September.
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