Banning information in hiring decisions

Abstract

Over the past decade, federal, state and local governments have restricted the types and uses of information in hiring and promotion decisions. Examples include the banning of credit reports and criminal records. This paper presents a simple microeconomic model of a competitive labor market and studies the economic effects of information bans. The key trade off is between allocative efficiency and helping a labor type with an undesirable characteristic. We compare information bans to direct subsidies. Moreover, we discuss the case where the ban creates negative feedback on the perceptions of firms considering workers of the bad type.