December 29, 2010
How Not to Help Blacks Find Employment
As of November 2010, the overall unemployment rate for whites was 9.2%, but for African Americans, it was 16.0%. Among those aged 16 to 19, the difference (including both males and females) was significantly larger -- 20.9% for young whites versus 46.5% for young blacks. In job-rich Manhattan, only one in four young (16-24) black males was employed in 2010. What is especially remarkable about these statistics is their intractability. Since the 1960s and the War on Poverty, Washington has spent billions -- everything from job training programs to tax incentives to anti-discrimination laws -- to eradicate this gap, all to no avail.
Given a half-century of failure, efforts to narrow differences have grown increasingly desperate. The latest is the federal government's attempt to equalize how black and white job candidates appear to prospective employers even if they differ substantially -- just ban employers from checking credit and criminal histories so as not to "unreasonably" disadvantage black job applicants.
The facts are straightforward. First, African-Americans are far more likely to have criminal records than whites, and according to a Federal Reserve report, they disproportionally also have credit problems -- repossessions, bankruptcies, wage garnishments, outstanding unsatisfied court judgments, and high overdue credit card balances. Second, the internet (and other technologies) facilitates quick, inexpensive background checks of prospective employees (for example, here). Third, the courts have held that an employer screening of job applicants is inherently racially discriminatory if blacks are disproportionally excluded according to criteria that lack direct connections to the jobs (the principle of disparate impact).
Advocates of prohibiting this inquiry typically insist that (a) criminal and financial records are error-prone and sometimes outdated, and they often do not distinguish between serious and trivial infractions; (b) may reflect legal encounters decades back, often just youthful foolishness, and (c) past bad behavior often has nothing to do with the sought-after job. This view is gaining traction beyond the federal government's longstanding campaign against disparate impact. Several states have explicitly banned employers from using credit histories in employment screening, and a law was recently introduced (H.R. 3149) that would severely limit this practice nationally.
This anti-background check effort recently drew national attention when the Equal Employment Opportunity Commission (EEOC) sued the Kaplan Higher Education Corporation for using credit histories to screen applicants, a widespread and growing practice among both private firms and the government itself. According to the suit, since January 2008, Kaplan has examined applicant credit histories, and blacks have been disproportionately rejected. The EEOC demands that Kaplan not only cease this harmful practice, but that the corporation also award back wages and benefits to those African-Americans not hired due to credit troubles. Kaplan's defense is that it already has a diverse workforce and is an equal-opportunity employer, and creditworthiness is relevant since Kaplan employees often handle financial matters.
Given the enduring gap between whites and blacks in obtaining jobs, the obvious question is whether this new approach will help African-Americans get more jobs. Probably not -- and, as with so many other well-intentioned interventions, it will widen gaps.
An almost prima facie case exists that criminal records and a poor credit rating tell a lot about a prospective employee, even for menial work. Past troubles provide clues about avoiding unwise risk, a capacity to plan, and a willingness to follow rules and otherwise behave prudently. These traits may have little to do with specific duties, but no employer wants a workforce of deadbeats and former felons. Yes, there may be a weak link between failure to pay one's credit card on time and sticky fingers when sweeping the store floor at midnight without supervision, but there may be a connection, and given multiple applicants for the floor-sweeper position, why risk hiring a thief? And even if the initial job is unrelated to past problems, what happens when this employee asks for a promotion where the shaky background is relevant? Denying this request only invites litigation.
That these hiring criteria are racially discriminatory does not mean that they are economically irrational. Especially since good-paying jobs typically attract numerous applicants (especially in hard economic times), poor credit or a criminal conviction are perfect tie-breakers to sort out applicants. There are also supervision costs associated with monitoring employees with troubled backgrounds. I owned a retail business for thirteen years, and this included hiring (and firing) dozens of employees. Predicting who will be an unsatisfactory employee, and especially a thief, is difficult enough without knowing applicants' personal histories, a situation compounded by many past employers refusing to say anything bad for fear of litigation. Given the paucity of information, I relied on the easily available applicant's history of paying utility bills, since I discovered that chronic no-payers often skipped work, to resolve these crises. Nor did I trust those whose daily finances were desperate. To prohibit background checks is just one more attack on business.
Ironically, banning background checks may exacerbate black unemployment. If an employer has inadequate information about a prospective hire, he or she is forced to use crude proxies, and race is a convenient, clear-cut proxy. So rather than risk hiring an ex-felon or chronic deadbeat, stick to whites or Asians. In fact, one study of this relationship found that employers were more likely to hire black males where they could perform background checks on past criminality. In other words, since most blacks have clean records, these "helpful" prohibitions were a liability for those who might otherwise be hired.
This ill-advised "help" is just one of many similar unhelpful government interventions. Prohibiting background checks only adds to an already heavy employer burden whose unintended impact is to price many blacks out of the job market. After all, what employer wants employees who can so easily sue for discrimination, real or imagined, on so many grounds (see here)? Similarly, why hire somebody whose educational credentials are less than bona fide thanks to government pressure on schools to "make the number" or admit unqualified applicants so as to redress historical inequalities -- and then prohibit the employer from independently testing job applicants if whites are likely to outscore blacks despite comparable credentials? Or why hire somebody who has been endlessly instructed that America is hopelessly racist and that this racism must be exposed? No wonder that as private employment grows more competitive and employers have better choices, government itself has increasingly become the chief employer of blacks, since it lacks rivals with a superior workforce (see here, for example).
What might explain this counterproductive assistance? A cynic might claim that the hidden goal is greater dependency on government, but I'll leave that devious possibility to others. Personally, I suspect that many "friends" of unemployed blacks lack any understanding of how businesses can escape these economically harmful edicts. In their mistaken view, help is just a matter of upping the pressure on white employers. Yet, faced with edicts to hire blacks they are loath to hire, a firm might relocate to largely whites areas, increase automation, hire subcontractors immune to government mandates, eliminate or sell portions of the business, hire off the books and pay in cash, or outsource tasks overseas. These actions are, of course, increasingly commonplace and perfectly legal, and each may well contribute to the intractability of black unemployment.
Unfortunately, champions of boosting black employment refuse to acknowledge these avoidance strategies. They remain stuck in the white prejudice explanation and ignore the sound reasons behind these dreadful unemployment figures (see here). So rather than counsel blacks on how to use credit prudently, these "friends" attempt to create a fantasy world where employers cannot check troubled credit histories. But as the statistics show, the sham doesn't work. To invoke the mother of all clichés, with friends like this, who needs enemies?