Deleting a Signal: Evidence from Pre-Employment Credit Checks

Abstract

We study the removal of information from a market, such as a job-applicant screening tool. We characterize how removal harms groups with relative advantage in that information: typically those for whom the banned information is most precise relative to alternative signals. We illustrate this using recent bans on employers' use of credit report data. Bans decrease job-finding rates for Black job-seekers by 3 percentage points and increase involuntary separations for Black new hires by 4 percentage points, primarily because other screening tools, such as interviews, have around 70% higher standard deviation of signal noise for Black relative to white job-seekers.

Keywords: Employment Discrimination, Hiring, Firing, Signaling, Information Economics

JEL Classification: J680, J780, M510, J630, D040, D820, D830