Since I give Elizabeth Warren a hard time when she pulls her punches, I am remiss in not giving a thumb’s up to her proposed Equal Employment for All Act, which would bar the use of credit reports in most hiring decisions. In the stone ages of my youth, it was unheard of to pull a credit report for a prospective worker. The only cases where it was considered relevant was for jobs in which the employee handled cash, such as a branch teller, since someone who was seriously in debt might find it hard to resist the temptation to pilfer.
Of course, it goes without saying that making creditworthiness a condition for getting a job, which in many people’s cases is a condition for survival, entrenches the power of banks and other creditors. You don’t need debtors’ prisons if the consequence of a bad credit score could ultimately be living on the streets.
The use of these records is essentially a misleading bit of busywork on the part of human resources departments. A post by Bob Lawless at Credit Slips points out that credit scores are generally useless in an employment context and merely pander to employers’ prejudices as to what constitutes virtue:
there is money to be made in convincing those who make hiring decisions that there are data and services that can unlock the hidden traits of job applicants.
Such claims play into a well-known psychological phenomenon known as the fundamental attribution error or the correspondence bias. As Gilbert & Malone put it:
People care less about what others do than about why they do it. Two equally rambunctious nephews may break two equally expensive crystal vases at Aunt Sofia’s house, but the one who did so by accident gets the reprimand and the one who did so by design gets the thumbscrews. . . .
Attribution theories suggest that the psychological world is a mirror of the physical world and that the two are therefore penetrated by the same logic. Ordinary people seem to believe that others behave as they do because of the kinds of others they are and because of the kinds of situations in which their behaviors unfold . . . .
Attribution theory makes a distinction between situational and dispositional causes. A common mistake is to attribute an action entirely to a dispositional cause while ignoring possible situational causes. For example, when observing a driver running a red light, we often will jump to the conclusion the driver is reckless and ignore explanations such as a medical emergency.
The efficacy of pre-employment credit checks plays exactly into the fundamental attribution error. When we see someone with a bad credit report, we tend to attribute it to dispositional causes (poor financial decision making, financial recklessness, dishonesty) than situational causes (health problems, layoff, divorce). Moreover, we probably are especially prone to make the fundamental attribution error when it comes to financial problems. A dispositional cause allows us to tell ourselves the financial problems will not happen to us because we believe ourselves to lack the necessary disposition that will lead to the problems.
The fundamental attribution error, however, does not mean that dispositional causes are never partially or fully explanatory. Sometimes people run red lights because they are reckless, or sometimes bad credit results from a fundamentally dishonest nature. Usually, the most complete explanations for any social phenomenon are multicausal. The question raised by Senator Warren’s bill, however, is not whether some people might have dispositions that correlate with financial irresponsibility but whether credit reports can screen for bad employees. The fundamental attribution error makes us want to believe they can do so, but there is almost no evidence to support that notion (although more research would be useful).
A paper in the International Journal of Selection and Assessment by Oppler, Lyons, Ricks & Opper has been cited by the opponents of Senator Warren’s bill. That paper, however, does not look at the use of credit reports, but instead examines two questions used on an employment application at a large federal agency (maybe the Bureau of Prisons given the authors’ institutional affiliations). The questions asked if the applicant (1) had filed bankruptcy in the past seven years or (2) was currently more than 180 days delinquent on a loan or financial obligation. The study then looked to see if answering “yes” to one of these questions was correlated with “counterproductive work behaviors,” which for purposes of the study was defined to include failure to pay debts and misuse of credit cards. Thus, the study seems to find that persons who are more than 180 days delinquent on a loan or financial obligation are also more likely to fail pay debts or misuse a credit card. The paper has little relevance to the debate over pre-employment credit checks.
The rest of the research finds credit reports to be of no predictive value.
Moreover, from what I can tell, these studies didn’t correct for errors in credit reports. 70% of credit reports contain at least one error, and if you’ve ever had a significant one, you know how hard it is to get the credit agencies to correct it.
While this bill is welcome, credit reports are the simply the oldest version of database scientism in hiring. The media regularly features stories of employers regarding candidates without FaceBook accounts with prejudice (they must be anti-social!) and demanding FaceBook passwords as a condition of serious consideration, presumably so they can snoop through communiques. What’s next, having employers ask for access to your e-mail accounts before they’ll hire you? Similarly, an over-40 colleague who successfully landed a long-term gig said that making sure he had a good roster of contacts on LinkedIn and a decent number of endorsements was critical to being considered seriously at a number of places where he sought work. So while it’s welcome to see Warren taking aim at the worst of dubious information-gathering, many of these other bad practices seem so deeply entrenched that they are probably here to stay.