Tuesday, March 29, 2016

Misery from prejudicial coercive decision making

From Banning credit checks harms African-Americans by Tyler Cowen.

Two separate studies are referenced which illustrate the danger of coercive power used with good intentions but bad consequences. In one, African-Americans are assumed to be disproportionately discriminated against in hiring when their credit history is available. Real world research indicates otherwise.

But a new study from Robert Clifford, an economist at the Boston Fed, and Daniel Shoag, an assistant professor at Harvard’s Kennedy School, finds that when employers are prohibited from looking into people’s financial history, something perverse happens: African-Americans become more likely to be unemployed relative to others.

…What’s surprising is how that redistribution happened. In states that passed credit-check bans, it became easier for people with bad credit histories to compete for employment. But disproportionately, they seem to have elbowed aside black job-seekers.
In the second set of research, there is a similar assumption that allowing employers to administer drug tests will result in disproportionate impact on African-American, leading to a ban on drug testing. Again, real world research indicates the opposite.
A powerful study published last year in the Review of Economics and Statistics shows something of the opposite happening: When employers began to require drug tests for job applicants, they started hiring more African-Americans.
“The likely explanation for these findings is that prior to drug testing, employers overestimated African-Americans’ drug use relative to whites,” the study’s author explained in an op-ed. Drug tests allowed black job applicants to disprove the incorrect perception that they were addicts.
It’s possible that credit checks were playing a similar role to drug tests, offering a counterbalance to inherent biases or assumptions about black job-seekers.
Three conclusions seem equally valid. First, whatever the good intentions might be, no action should be taken without research.

Second, centralized decision-makers should not be regarded as beneficient. They carry negative prejudices against everyone. They carry negative stereotypes of African-Americans and they assume the worst motives of employers. Neither assumption is warranted.

Thirdly, and I think more fundamentally, no action should be taken based on empty assumptions. Always test the evidence first. You can save yourself a lot of misery that way.

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