May 20, 2013

Credit status and productivity

Many employers screen new hires by examining the credit reports of job applicants. The practice has sparked debate, with opponents asserting that it amounts to discrimination and proponents maintaining that it is an important tool for employers to assure the quality of new employees. To date, little evidence exists on the validity of credit status as a screening device. The issue is complicated by the potential endogeneity of credit measures to labor market outcomes. This paper develops a typology of employer beliefs and a unique identification strategy to test whether credit status is predictive of employee productivity. The paper finds that the character-related portion of credit status is not a significant predictor of worker productivity.

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