Can Employer Credit Checks Create Poverty Traps?

P. Dean Corbae, Andy Glover and Daphne Chen
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Daphne Chen: Florida State University

No 875, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: According to a Survey by the Society for Human Resource Man- agement (2010), 60% of human resource representatives interviewed in 2009 indicated that the companies they worked for ran credit checks on potential employees. In this paper, we explore how credit checks (observable signals based on an agent’s unobservable type) may af- fect outcomes in a matching model of the labor market. We show that it may be individually optimal for employers to use such signals to make hiring/firing/compensation decisions. Such decisions how- ever may have important implications for household welfare inducing a poverty trap. The analysis can shed light on the consequences of a law (the Equal Employment for All Act (H.R. 3149)) prohibiting the use of credit information in employment decisions which currently sits before Congress.

Date: 2013
New Economics Papers: this item is included in nep-pke
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Citations: View citations in EconPapers (6)

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