Ban the Box - photo credit PBS

Death by HR – Ban the Box, Credit Scores, Current Salaries: The Road to Hiring Blind

So corporate hiring today is a mess, and about to get worse as progressives try to force companies to give up some of the few tools they have to disqualify criminal or unreliable applicants—with the usual noble motivations, of course. We’ll go over these efforts, then look at a new Seattle ordinance designed to limit discrimination in apartment rentals by forcing landlords to accept the first applicant who “qualifies,” which will evolve (if not pushed back) to limit allowed requirements until landlords essentially will be forced to take almost anyone. This idea of forcing acceptance of applicants will most likely soon be applied to hiring, as the social engineers gradually reduce any freedoms a business manager might have so that their client population can enjoy the benefits of being hardworking, reliable, self-controlled citizens without actually demonstrating any of those qualities. If US labor law ever reaches that late stage equality-of-outcome decadence, productivity will crumble, much as it did in the old USSR where jobs were similarly guaranteed and handed out based on pull. This kind of micromanagement of free-market employment practices is typical of progressives—to achieve the worthy goal (in this case, limiting invidious discrimination), they try to limit the use of management discretion in operating a business by passing unenforceable laws that tend to do more harm than good.

Progressives are working hard to outlaw use of credit scores or criminal records to screen job candidates. This is, of course, because bad records on either tend to identify less trustworthy, less reliable people that employers quite reasonably want to avoid hiring. The campaign to outlaw application questions about criminal records is called “Ban the Box,” and this catchy name means applications that include a box to be checked if the applicant has a criminal record are to be banned by law. Most such laws passed at state and local levels only ban the question on applications for government jobs or government contractors, since the legality of going further at the local level is questionable. But moves are afoot to make it part of Federal equal employment regulations.

It’s true that not every candidate who fails such screening would be a bad employee. Both ex-prisoners and bad credit risks might well have reformed, with the black marks on their record not indicating their current state of trustworthiness—and a wise employer might consider them by looking deeper into their background and directly questioning them on how they may have learned from their experiences. But employers who are going to rely on the keeping of promises to show up on time, work hard, and not steal from their employer are not wrong to think these are factors to consider.

Further, studies of “Ban the Box” laws show that they can actually harm the minorities they are intended to help. An employer who loses the ability to check for a criminal record may be more likely to act on prejudice—after all, prejudice and adverse stereotyping are strongest where information is limited. Being able to pass a criminal record check enhances a minority candidate’s chance of being viewed as a good risk for the employer. The most recent study demonstrated this effect:

“Ban-the-Box” (BTB) policies restrict employers from asking about applicants’ criminal histories on job applications and are often presented as a means of reducing unemployment among black men, who disproportionately have criminal records. However, withholding information about criminal records could risk encouraging statistical discrimination: employers may make assumptions about criminality based on the applicant’s race. To investigate this possibility as well as the effects of race and criminal records on employer callback rates, we sent approximately 15,000 fictitious online job applications to employers in New Jersey and New York City, in waves before and after each jurisdiction’s adoption of BTB policies. Our causal effect estimates are based on a triple-differences design, which exploits the fact that many businesses’ applications did not ask about records even before BTB and were thus unaffected by the law.

Our results confirm that criminal records are a major barrier to employment, but they also support the concern that BTB policies encourage statistical discrimination on the basis of race. Overall, white applicants received 23% more callbacks than similar black applicants (38% more in New Jersey; 6% more in New York City; we also find that the white advantage is much larger in whiter neighborhoods). Employers that ask about criminal records are 62% more likely to call back an applicant if he has no record (45% in New Jersey; 78% in New York City)—an effect that BTB compliance necessarily eliminates. However, we find that the race gap in callbacks grows dramatically at the BTB-affected companies after the policy goes into effect. Before BTB, white applicants to BTB-affected employers received about 7% more callbacks than similar black applicants, but BTB increases this gap to 45%.[1]

Most of these laws are presented as preventing pre-screening; the employer may still look into criminal records after deciding to offer the candidate a job. But the clear trend is to make ex-criminal status a protected class and outlaw discrimination on that basis. Another paper suggests employers are more likely to avoid even taking applications from minority candidates if these laws are in place, exercising a form of passive resistance that is hard to prevent:

Removing information about job applicants’ criminal histories [through Ban The Box (BTB) laws) could lead employers who don’t want to hire ex-offenders to try to guess who the ex-offenders are, and avoid interviewing them. In particular, employers might avoid interviewing young, low-skilled, black and Hispanic men when criminal records are not observable. This would worsen employment outcomes for these already-disadvantaged groups. In this paper, we use variation in the details and timing of state and local BTB policies to test BTB’s effects on employment for various demographic groups. We find that BTB policies decrease the probability of being employed by 3.4 percentage points (5.1%) for young, low-skilled black men, and by 2.3 percentage points (2.9%) for young, low-skilled Hispanic men. These findings support the hypothesis that when an applicant’s criminal history is unavailable, employers statistically discriminate against demographic groups that are likely to have a criminal record.[2]

Not screening hires for criminal records also subjects employers to big negligence awards when consumers are victimized by unscreened employees:

“Consider these allegations from a 2012 Virginia case,” Leeson said. “The employer hired a person to work in a hotel, and allegedly did not perform a background check or ask about the person’s criminal history. The person had previously been convicted of a felony sex crime. The person thereafter raped an 18-year-old hotel maid on her third day on the job. The maid sued the hotel for negligent hire. The case settled with the hotel agreeing to pay $675,000 to the former maid.” Ultimately, Leeson said, “I believe it is reasonable and prudent for employers to ask about prior convictions as one factor in the overall evaluation of the applicant.”[3]

But the laws are spreading rapidly and being applied to private employers as well:

Nine states — Connecticut, Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Rhode Island, and Vermont — have removed the conviction history question on job applications for private employers, which advocates embrace as the next step in the evolution of these policies.

The majority of ban-the-box laws apply only to public employers, but blanket ban-the-box laws impacting all sectors are on the rise. Many advocates embrace private-sector ban-the-box laws as the “next step in the evolution of these policies,” according to the National Employment Law Project (NELP), a worker advocacy organization….

There are also various city and county ban-the-box laws around the country that apply to private employers…

Many ban-the-box policies exempt employers that have 10 employees or less, but some, such as Minnesota’s, do not. And while many private employers have balked at ban-the-box policies, at least two large retailers have jumped on board. National retailers Target and Wal-Mart no longer ask about an applicant’s conviction record during the initial phase of the hiring process, according to NELP. In order to comply with the 2013 Minnesota law, Minneapolis-based Target announced it was eliminating the box on its applications. Wal-Mart took that action in 2010.[4]

So if your area doesn’t already have a BTB law, it soon will.

Now to move on to the use of credit reports to screen candidates: credit reports are already regulated by Federal law, and since they aren’t cheap, companies rarely use them to pre-screen candidates. But they are widely used in the final stages of hiring decisions:

Employers get a shortened version of your credit report that excludes any information that would violate equal employment opportunity laws, explains Rod Griffin, director of public education for credit bureau Experian. An employer report also does not list “soft” inquiries, which do show up on the report an individual receives….

According to a 2012 survey conducted by the Society for Human Resource Management, 47% of employers check potential employees’ credit reports as part of the hiring process. The same study found that the two most common reasons for reviewing job candidates’ credit reports are to decrease the likelihood of theft and embezzlement and reduce legal liability for negligent hiring. According to an article in The New York Times, which cited the same survey:

“Most businesses use credit checks only to screen for certain positions, but one in eight, the survey found, does a credit check before every hire.”

But it’s important to remember that your employer can’t check your credit report without your consent; you must give written permission. Also, an employer won’t be seeing personal information, like your account numbers, when he or she reviews your report. The modified version that’s provided takes steps to protect your privacy.

Also, 11 states have laws prohibiting employer credit checks and/or restricting how this information can be used in the hiring process. If you live in one of these states, an employer credit check may not be something you need to worry about.[5]

Many employers are failing to follow the existing laws on use of credit reports, and as a result are getting hit with multimillion-dollar class action lawsuits:

Last year saw an increasing number of FCRA class-action lawsuits filed and settled for millions of dollars. FCRA violations can range from not making legally required disclosures to not following proper adverse action procedures.

“Not a month has gone by in over a year when there hasn’t been a major FCRA class action on background checks, and that trend has already continued into January,” said Nick Fishman, executive vice president at EmployeeScreenIQ.

We may see an “explosion” of FCRA class-action suits against employers and background screening firms as plaintiffs’ attorneys become more familiar with the law and the whole area of background checks, said Rosen. The financial recovery can be enormous—up to $1,000 per person in damages.

“Given the large statutory damages at issue, the promise of attorneys’ fees and punitive damages, along with the fact that there is an open question as to whether an individual need be actually harmed to bring an action, these claims will undoubtedly continue,” Devata agreed. Many FCRA claims have nothing to do with a person being harmed, but instead are the result of a mere technicality in the law, she added. …Employers should be aware that taking an adverse action—terminating an existing employee, rescinding a job offer to an applicant, denying a promotion—based on a consumer report “requires them to engage in a multistep process and requires close consideration of timed requirements,” said Do. “Bottom line, if negative information comes back on a background check, an employer simply can’t just pick up the phone and say ‘You’re not getting the job.’ ” Failing to provide a copy of the consumer report, failing to furnish a copy of the FCRA summary of rights document, and failing to provide the opportunity to dispute a report’s inaccuracies or errors, are common allegations, said Do.

These suits are the most troubling because they are the most avoidable, said Fishman. “These laws aren’t that hard to follow. Employers need to continually audit their processes and make sure that they comply with the law.”

It’s important to train incoming HR staff on the FCRA. “In many cases, with high turnover in HR departments, the sufficient training that was provided when an employer first signs on with a screening firm may not be adequately conveyed to new members. The likelihood that an oversight may result when an undertrained staff member fails to follow protocol then increases,” said Do.[7]

Notice how a seemingly well-motivated law not only removes hiring discretion, but with the help in this case of class action lawyers (who are part of the political class feeding off private industry with the help of the pols who write the laws), requires hiring more and more HR staff and consultants to administer and train for it. Every regulation imposed on employers increases non-productive staff and budget, and decreases the freedom to seek out the best employees without fear of government punishment. Every gain in “fairness” imposed by law costs everyone twice as much in lost growth and opportunity.

And banning use of credit checks in hiring has the same perverse effect as “Ban The Box” — it hurts minorities:

One of the hottest ideas among lawmakers right now is to ban employers from running credit checks on job applicants. Since 2007, eleven states, as well as Chicago and New York City, have passed such laws. Supporters of these restrictions often frame the issue as a civil rights problem. In particular, they say, credit checks impede employment among minorities, who disproportionately have low credit scores.

…But a new study from Robert Clifford, an economist at the Boston Fed, and Daniel Shoag, an assistant professor at Harvard’s Kennedy School, finds that when employers are prohibited from looking into people’s financial history, something perverse happens: African-Americans become more likely to be unemployed relative to others….

Why did black unemployment go up?

To understand how banning credit checks can lead to unforeseen repercussions, consider the problem from the employer’s perspective. A single job opening these days can get hundreds of applications. Since hiring managers can’t interview every candidate, they need some way to narrow the field. Filtering out people with bad credit helps them bring the number of applicants down to a manageable size. But if employers can’t look into a job-seeker’s financial history, they try something else.

“Employers have many screening measures to narrow down who they want to hire,” Shoag says. “If you take one away, they’ll put more weight on the others.”

That’s exactly what seemed to happen in places that outlawed employer credit checks. Looking at 74 million job listings between 2007 and 2013, Clifford and Shoag found that employers started to become pickier, especially in cities where there were a lot of workers with low credit scores. If a credit-check ban went into effect, job postings were more likely to ask for a bachelor’s degree, and to require additional years of experience.

There are other ways that employers could have also become more discerning, Shoag says. They might have started to rely on referrals or recommendations to make sure that applicants were high-quality. In the absence of credit information to establish trustworthiness, they may even have fallen back on racial stereotypes to screen candidates. The researchers couldn’t measure these tactics, but they’re possibilities.

Any of these reasons might explain one of the study’s strangest findings. In states that passed a credit-check ban, unemployment for African-Americans rose by about one percent compared to unemployment in other states and among other demographic groups. This remained true after controlling for factors like education, age, and gender.

… In the absence of that information, employers had to rely more on other clues about the quality of applicants, including their education and experience levels, but also, perhaps, their interview skills or their recommendations. Whatever the new criteria were, they seem to have put black applicants at a disadvantage.

“This reflects a general movement of legislators monkeying around with the hiring process without thinking about the consequences,” Shoag says.[8]

The latest in efforts to restrict information available to hiring companies is the so-far-not-cleverly-named movement to ban asking any questions about salary history. The theory here is that current and past salary history can be used to hold back women, since a new employer may well offer an increase based on the supposedly lower salaries women make under the yoke of discrimination. The practical need for both applicant and employer to discover whether they are even close to a negotiating range is, of course, not considered, because the appearance of helping women make better salaries is all that counts. Now employers may spend considerable effort to decide on a candidate only to discover the salary they were prepared to offer is far too low to interest the candidate.

Massachusetts was the first state to pass such a law.[9] But theirs goes further, attempting to enshrine the concept of comparable worth—even different jobs with similar labor and standards are supposed to pay the same. This was in response to a suit from largely female cafeteria workers paid just over half of what janitors in the same school system made; the obvious difference in working conditions (social and clean vs. nonsocial and dirty) which explain the relative attractiveness of the positions, and thus the pay differential, seem to be beyond the politicians. This subjective standard will occupy court time and allow more lawyers to extract profitable settlements for themselves.
Meanwhile, attempts to outlaw salary questions at the Federal level are ongoing:

Under the Pay Equity for All Act of 2016 (H.R. 6030), the U.S. Department of Labor would be able to assess fines up to $10,000 against employers who violate the law by asking questions about an applicant’s salary history. Additionally, prospective or current employees would be able to bring a private lawsuit against an employer who violated the law and could receive up to $10,000 in damages plus attorney fees….

Although many employers may not intend to discriminate on the basis of gender, race or ethnicity, asking for prior salary information before offering an applicant a job can have a discriminatory effect in the workplace that begins or reinforces the wage gap, according to a news release announcing the bill.[10]

Women need a Big Brother on their side to have a chance at negotiating a fair salary for themselves, and the Party of Government is happy to provide one. Or at least pretend to.



[1] “Ban the Box, Criminal Records, and Statistical Discrimination: A Field Experiment,” by Amanda Y. Agan (Princeton University – Department of Economics) and Sonja B. Starr (University of Michigan Law School), U of Michigan Law & Econ Research Paper No. 16-012, June 14, 2016. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2795795
[2] “Does ‘Ban the Box’ Help or Hurt Low-Skilled Workers? Statistical Discrimination and Employment Outcomes When Criminal Histories are Hidden,” by Jennifer L. Doleac and Benjamin Hansen, NBER Working Paper No. 22469, July 2016. http://nber.org/papers/w22469?sy=469
[3] “Ban-the-Box Movement Goes Viral,” by Roy Maurer, SHRM, 2016. https://www.shrm.org/ResourcesAndTools/hr-topics/risk-management/Pages/Ban-the-Box-Movement-Viral.aspx
[4] Maurer
[5] “Your Employer Won’t Be Looking at Your Credit Score—Here’s Why,” by Lindsay Konsko, Nerdwallet, August 1, 2016. Starts by saying employers don’t look at credit scores, then segues to how they actually look at credit reports. https://www.nerdwallet.com/blog/finance/credit-score-employer-checking/
[6] “The Use of Credit Reports in Employment Background Screening,” by Lester Rosen, CEO, Employment Screening Resources, and Kerstin Bagus, Director Global Compliance, LexisNexis Screening Solutions Inc., 2010. http://www.esrcheck.com/file/ESR-LN_The-Use-of-Credit-Reports-for-Employment-Background-Screening.pdf
[7] “Know Before You Hire: 2015 Employment Screening Trends,” by Roy Maurer, SHRM, January 27, 2015. https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/2015-employment-screening-trends.aspx
[8] “The law was supposed to reduce discrimination. But it made hiring more racially biased,” by Jeff Guo, Washington Post, March 23, 2016.
https://www.washingtonpost.com/news/wonk/wp/2016/03/23/the-law-was-supposed-to-reduce-discrimination-but-it-made-hiring-more-racially-biased/
[9] “Does new law mean real pay equity for women? Not quite,” by Shirley Leung, Boston Globe, August 4, 2016. https://www.bostonglobe.com/business/2016/08/04/things-know-about-massachusetts-equal-pay-law/uuiduzYp7EyiIBhxt14pSJ/story.html
[10] “Bill Banning Salary History Questions Goes Before House.” by Kathy Gurchiek, SHRM HR Today, Sep 16, 2016. https://www.shrm.org/hr-today/news/hr-news/pages/bill-banning-salary-history-questions-goes-before-house.aspx


Death by HR: How Affirmative Action Cripples Organizations

Death by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations,  available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits… HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

More reading on other topics:


More Reading:

Death by HR: EEOC Incompetence and the Coming Idiocracy
Corrupt Feedback Loops: Public Employee Unions
Unrealistic Expectations: Liberal Arts Woman and Amazon Men
Stable is Boring? “Psychology Today” Article on Bad Boyfriends

One comment

  1. Excellent piece, IMHO. In the late 80’s early 90’s I had occasion to interact with California legislator and “former” radical Tom Hayden who was on the committee concerning itself with labor matters (in fact, he may have been head of it, I just don’t remember). When given a chance to expound on what he thought was the prospective employers responsibility in employment matters he essentially described a system you outline here. In fact, I seem to recall that he would have had an employer get into areas customarily falling into “social welfare”

    Suffice to say, we HR practitioners in the audience were aghast and were most happy to see him move off the committee in due course (scuttlebutt around the capitol was that most of his fellow legislators regarded him as a loose cannon, but of course these sorts of regulations more frequently come from either 1) interest groups and 2) isolated but appalling actions by some employer somewhere.

    Perhaps the most powerful tool at our disposal was, surprisingly to many, was simply to do reference checks with the employers listed on the employment history section of our application form (plus asking for copies of transcripts and diplomas in the case of applicants claiming advanced education/training). I don’t recall ever having anyone even report a conviction — they probably dropped out when they saw the question on the application. We did credit checks for jobs involving financial responsibility, but we didn’t do such checks on current employees transferring or promoted into such jobs. Guess who stole from us…

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s