Is Credit Status a Good Signal of Productivity?

Abstract

In this article, the author uses a unique identification strategy along with credit proxy variables in a national data set to test whether credit status reveals information about an employee’s character that is predictive of employee productivity. Many employers screen new hires by examining the credit reports of job applicants. The practice has sparked debate, with opponents asserting that it amounts to discrimination and proponents maintaining that it is an important tool by which employers can ensure the quality of new employees. To date, little evidence exists on the validity of credit status as a screening device. The issue is complicated both by the lack of available data and by the difficulty in establishing causality. Results indicate that the character-related portion of credit status is not a significant predictor of worker productivity.