The positive effect of eliminating statistical discrimination

From Perceived Criminality, Criminal Background Checks, and the Racial Hiring Practices of Employers by Harry J. Holzer and Steven Raphael.

I have long accepted as a working hypothesis that criminal background-checks were likely to have a disparate impact on African-Americans. At the same time, I have also believed that it was entirely within the right of the employer to perform such background checks. This research suggests that in fact, for both employers and employees, that criminal background checks are beneficial.

The findings of this study are several. To begin, the empirical estimates indicate that employers who perform criminal background checks are more likely to hire black applicants than employers that do not. This positive association remains even after adjusting for an establishment’s spatial proximity to black residential areas and for the proportion of applications that come from African Americans. In the context of the theoretical arguments discussed above, this positive net effect indicates that the adverse consequence of employer-initiated background checks on the likelihood of hiring African Americans is more than offset by the positive effect of eliminating statistical discrimination. To be sure, the group of workers who are excluded by a background check are surely different from the group of workers who are harmed by incorrect perceptions regarding their criminal histories. In other words, behind the net changes are two offsetting gross effects that impact the welfare of alternative groups of African American workers.

In addition, we find that the positive effect of criminal background checks on the likelihood that an employer hires a black applicant is larger among firms that are unwilling to hire ex-offenders. This pattern is consistent with the proposition that employers with a particularly strong aversion to exoffenders may be more likely to overestimate the relationship between criminality and race and hence hire too few African Americans as a result.

The logic of disparate impact is reasonable but the research suggests that greater transparency reduces the discount costs (in terms of risk) of hiring individuals with non-standard backgrounds thereby increasing opportunity. Specifically, when forced to function in an information vacuum, companies otherwise disposed to hiring non-standard employees substitute stereotypes and estimates in the place of hard numbers, to the detriment of all applicants.

There is always value in checking revealed behavior in empirical studies over relying on theoretical hypotheses.

Another example of good intentions (get rid of background checks) leading to negative outcomes.