Chicago ordinance with good intentions makes job-seeking harder for applicants who are young or black
The unintended consequences of a Chicago credit-check ordinance have harmed young and black workers, and show why lawmakers should focus on repealing the laws preventing employment for Illinoisans, rather than creating new ones.
A Chicago ordinance intended to help people with bad credit find work more easily had the effect of shifting employment woes from this group of people onto another group – job applicants who are young or black, according to new research.
The new study by Harvard University professor Daniel Shoag and Federal Reserve economist Robert Clifford found that when businesses were prohibited from using credit checks, they looked for other ways to decide between candidates. For example, after the ban employers were more likely to require a college degree or previous experience. Blacks and workers under 22 years old were less likely to be qualified for a job under new conditions such as these, and were harmed by the shift in hiring processes, according to the study.
While well intentioned – indeed, the study found employment did increase slightly among those with very low credit scores – overall the law only shifted unemployment onto blacks and the young. The ordinance is not unique in this respect, as any time the government dictates hiring practices it risks creating problems for other groups. In fact, a separate study has shown that a similar law called “ban the box”, passed in 2015 statewide and in Chicago through a separate, more stringent ordinance, substantially reduced employment and earnings for black men, too.
“Ban the box” requirements prohibit employers from asking about an applicant’s criminal history. Blacks are more likely than whites or Hispanics to have been incarcerated, so one might assume this law would improve black employment. But rather than helping black applicants, “ban the box” laws only cause employers to look for other signals (the authors speculate education, gaps in employment and receipt of public assistance) that tend to diminish hiring of black job applicants. As a result, when employers cannot check criminal histories, the likelihood of their last worker hired being black falls by more than a third.
Laws that prohibit use of criminal records and credit checks have proved counterproductive, and end up reducing fairness in hiring. But governments are far from powerless to increase employment among disadvantaged groups. Instead of adding new requirements to employers, policymakers should look to remove existing legal barriers to work. For example, occupational licensing imposes many of the burdens that the rules against credit and background checks seek to remove.
In Illinois, at least 118 professions are closed to anyone with a felony, and in some cases even misdemeanor, conviction. When individual employers use background checks an applicant might be able to find work with a different employer, but with licensing restrictions the potential worker is barred from the entire field, regardless of whether the customer or employer would be happy to hire the person. Policymakers could significantly improve the outlook for those with prior convictions by only imposing restrictions where the crime directly relates to the job in question.
Municipal rules too can act as an impediment for the most disadvantaged. Entrepreneurship can often provide opportunities for those of modest means or education who have less access to conventional options for advancement. But many municipalities, and especially Chicago, create barriers to low-income entrepreneurs, including labyrinthine rules and costly fees. Research shows that excessive regulation has a disproportionate impact on low-income entrepreneurs, reducing social mobility and increasing inequality.
New restrictions on employers such as credit and background checks may unintentionally hurt certain applicants, but giving customers or employers the freedom to do business with someone if they choose to does not. By focusing on repealing bad laws before passing new ones, policymakers can be far more effective in expanding opportunity for all sections of society.