Elizabeth Warren’s War on Job Creators
“This is about basic fairness -- let people compete on the merits, not on whether they already have enough money to pay all their bills,” said Warren, a Massachusetts Democrat. “A bad credit rating is far more often the result of unexpected medical costs, unemployment, economic downturns or other bad breaks than it is a reflection on an individual’s character or abilities.”
A few things: First, the credit reports employers see don’t even include the score -- or “rating,” as Warren put it. Rather, they show the credit report itself.
This isn’t a minor distinction: While a low credit score could reflect any number of causes (from medical bills to missed payments on a boat loan), the credit report includes comprehensive information on the applicant’s credit history. If the only delinquent accounts are medical bills, employers will see that; they will also see if the source of turmoil is boat loans, timeshares and a Neiman Marcus store card.
The fact sheet for Warren’s Equal Employment for All Act explains that “There is no evidence to suggest that credit is an indicator of one’s work ability”; in subsequent interviews she amended “no evidence” to “little or no evidence.” That’s more accurate, but it’s far from a settled matter.
There is abundant research suggesting that financial stress has a negative impact on job performance. A 2011 PricewaterhouseCoopers survey found that 29 percent of U.S. workers report that personal-finance issues have been a distraction at work, and 48 percent said that they had handled personal-finance matters during work hours. So while Warren is right that there isn’t definitive proof that a poor credit history predicts poor job performance, employers are hardly irrational for looking at it.
Tracy Coenen, a forensic accountant and the author of “Essentials of Corporate Fraud,” says that examining the financial situation of a prospective employee is one of the top tools companies have for preventing embezzlement.
“Financial difficulties are correlated with the propensity to commit fraud,” she says. “If you’re hiring for a position where someone will have access to money, you want to know whether they’re having financial difficulties.” Academic research on this matter is mixed. (A 2008 study found a correlation between financial history and workplace theft; a 2011 study found no such correlation.)
It would be fair to say that the rationale for employers wanting to look at credit reports is debatable and employers seem to agree. Only 47 percent say they check credit; perhaps the other 53 percent can build a competitive advantage hiring all the great workers who are passed over for other jobs because of bad credit.
Some employers ask prospective hires about any number of things that are of debatable relevance. Some employers like to hire former athletes; there is no conclusive evidence that they are the best workers (Lenny Dykstra and Curt Schilling, say hello), and it could be argued that such a hiring bias is unfair to those who aren’t athletically inclined or whose parents, because of their religious beliefs, banned their children from playing. Should the U.S. government bar employers from asking candidates if they played sports in high school?
There is also mixed research on whether graduates of elite colleges make particularly great employees. (One researcher argues that World of Warcraft players make better employees than Harvard grads.) And a 2012 analysis of Harvard undergraduates found that 45.6 percent came from families with household incomes above $200,000 -- putting them in the top 3.8 percent of American households. Is an elite education too correlated with class (and, by extension, race and ethnicity)? Should we bar employers from asking candidates where they went to college?
Hiring managers make decisions based on incomplete and imperfect information all the time; credit reports have no more potential to unjustly weed out potentially good employees than dozens of other things employers can ask about.
There’s also some brazen hypocrisy in the exemption Warren’s bill includes: The federal government and its contractors will still be able to require credit checks when hiring for positions that require a security clearance. This is curious given that Warren is so insistent that employers are irrational for wanting to look at credit reports.
So Warren apparently believes that everyone except the government should have to blindly hire people with a track record of financial trouble. Her disdain for the private sector and deference to government buttress the worst cliches about liberals.
Finally, remember that nothing in Warren’s bill proposes to create jobs. All that it will do is make it harder for workers with a history of financial responsibility to pair up with employers who value that.
We should leave it to the marketplace to decide how much credit history matters when it comes to hiring. Ten states have already passed laws restricting the use of credit reports in hiring.
That strikes me as an unreasonable intrusion into the relationship between employers and job applicants. We certainly don’t need the federal government to step in and make it the law for the other states that don’t want such restrictions.
(Zac Bissonnette is the author of “Debt-Free U.”)
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