Study: Bans on employment credit checks leads to higher unemployment

In the past decade, most states have banned or have considered banning the use of credit checks in hiring decisions. Using Equifax data on employer credit checks, the Federal Reserve Bank of New York Consumer Credit Panel/Equifax, and the LEHD Origin-Destination Employment data, Harvard Kennedy School showed that these bans increased employment of residents in the lowest credit score areas. On net, however, the changes induced by these bans generate relatively worse outcomes for those with mid-to-low credit scores Low credit score tracts (average credit score below 620) saw employment increase by 1.9-3.3% relative to similar tracts in states without bans on credit checks. However, employment declined at around the same rate in mid-to-low credit score tracts (average credit score between 630-650). The study also revealed that employers increased their demands for other signals of the job performance of applicants – such as education and experience – rather than credit checks. As a consequence, bans on credit checks generated relatively worse outcomes for African-Americans. Overall these are results that should be useful for academics and legislators as they consider how to increase employment while keeping businesses safe and secure. You can read the full study by Robert Clifford, an economist at the Boston Fed, and Daniel Shoag, an assistant professor at Harvard’s Kennedy School, here. If you have any questions about how you can implement credit check screening safely and effectively, contact the MYB team.]]>