Late to a couple of discussions. One is this slacktivist on HR using people’s credit scores as a filter on their jobs:
Some 14.6 million Americans are out of work. Nearly 7 million of those are long-term unemployed — people who haven’t been able to find a job in more than half a year. Those millions of Americans, as a direct consequence of being out of work, have lower credit scores. Those millions of Americans, as a direct consequence of looking for work, have lower credit scores. The credit agencies say that therefore the unemployed ought to remain unemployed.
….The use of credit checks in employment decisions should be banned. It is a form of discrimination against the poor — the codification and enforcement of class barriers. It is therefore a form of discrimination against those groups more likely to be poor and therefore a violation of the 14th Amendment. So it ought to be illegal already.
It’s also cruel, costly, bad for business and bad for America. Outlaw it. Make the practice — both the use of such scores and the provision or marketing of such scores for that use — punishable by fines and imprisonment. Make the punishment large enough that employees practicing this form of discrimination know that it will involve serious repercussions — harm to their firm’s “assets, reputation and security.
1) Let’s pretend I moved into a really crappy apartment in Brooklyn. Impossible to imagine, but let’s try. And while it looked fine on the walkthrough, it turned out to have all kinds of problems. Worse, the landlord doesn’t return my calls, doesn’t do the upkeep he promised, etc.
What’s my option? To threaten to not pay my rent and/or break my lease. That’s my real credible threat. He can hit my credit score if I don’t pay in return. I understand that I would then have a harder time finding an apartment, securing lines of credit, etc. but that may be worth it to keep my landlord in check. To the extent that a bad landlord will upkeep my apartment it is because if I don’t he or she knows I can take a credit score hit and walk away.
So as a result of a bad role of the life dice, I could end up with a bad credit score simply as a result of exercising basic contractual rights to keep myself from being screwed. Now if me protecting myself from being screwed could add weeks or months to duration of unemployment…suddenly that landlord can show up a few days later in fixing my broken shower.
Credit scoring isn’t some sort of impartial measurement, like taking my height or weight. It’s part of a game that I play with creditors; it’s a game that usually works fine until it doesn’t. When it doesn’t, having my ability to search for jobs imperiled cuts off my ability to negotiate for myself. Isn’t it worthwhile to keep these dimensions of ourselves separate?
I’ve also heard a lot about it being difficult to challenge FICO scores. I’m not sure if this is true or not, it’s always something I’ve wanted to investigate, but I’ve heard that. To the extent that it is difficult to challenge it is hardest for those with poor access to legal services or those who are disconnected from the formal credit economy.
It’s the Aggregate Demand!
2) In the short term, this is a sideshow. Slacktivist argues this is one of the reasons unemployment is so high right now and the recovery is slow. I doubt that. The real reason HR people can behave as mini-tyrants?
Scott Winship has a chart showing unemployed per job opening:
EPI follows this as well:
There’s simply a lot of people looking for jobs. At the margins, it’s worth it for HR to spend extra time searching for employees because there’s no rush to produce goods or services. Meanwhile there’s a complete lack of aggregate demand. Companies are sitting on cash instead of using it to build and hire. If inflation spurred investment, if the government could stoke aggregate demand, then suddenly employees would have more bargaining power and HR reps would get yelled at if jobs weren’t filled because new work needs to get done, and this would likely go away as a problem.
I’m curious as to the long-term effects of 10% unemployment. Could we see a new cultural or legal equilibrium form that gave even more power to employers over employees if we slowly drag ourselves out of this recession Japan style?
UPDATE: Whoops. I don’t think that renter’s example is relevant at all. Oh well. It would be true of other consumer debts.
But credit reports give all your accounts and balances and payment status. I wonder if that would be a good measure of how liquidity constrained a person is, and as such how quickly they’d be willing to bargain for a job. If someone is about to go broke, he’ll take a job with fewer benefits. etc. If an employer know that, but the applicant doesn’t know how quickly the firm needs the job filled, there’s an asymmetry there. That actually strikes me as far more insidious.