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Who Benefits from Bans on Employers’ Credit Checks?

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Several US states ban employers’ use of credit reports in hiring decisions. This paper evaluates whether these bans help financially distressed individuals find employment. We use the Survey of Income and Program Participation to identify individuals likely to directly benefit: unemployed individuals with recent trouble meeting expenses. Exploiting the staggered passage of state laws, we find that banning credit checks increases the job-finding rates among financially distressed job seekers by about 28 percent. We also find an increase in the employment duration of financially distressed individuals who do find jobs, which suggests that they obtain more stable and permanent positions. Finally, we find a small and insignificant change in job-finding rates among nondistressed individuals, but we cannot rule out that this group is harmed by pooling with financially distressed individuals.

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