Discrimination in the labour market: Should criminal records be public?

The following paragraph is an abstract of the paper “The Effect of Employer Access to Criminal History Data on the Labor Market Outcomes of Ex-Offenders and Non-Offenders” by Keith Finlay

Since 1997, states have begun to make criminal history records publicly available over the Internet. This paper exploits this previously unexamined variation to identify the effect of expanded employer access to criminal history data on the labor market outcomes of ex-offenders and non-offenders. Employers express a strong aversion to hiring ex-offenders, but there is likely asymmetric information about criminal records. Wider availability of criminal history records should adversely affect the labor market outcomes of ex-offenders. A model of statistical discrimination also predicts that non-offenders from groups with high rates of criminal offense should have improved labor market outcomes when criminal history records become more accessible. This paper tests these hypotheses with criminal and labor market histories from the 1997 cohort of the National Longitudinal Survey of Youth. I find evidence that labor market outcomes are worse for ex-offenders once state criminal history records become available over the Internet, and somewhat weaker evidence that outcomes are better for non-offenders from highly offending groups. Results for ex-offenders demonstrate the presence of imperfect information about criminal records by employers. The non-offender results are consistent with statistical discrimination by employers. Estimates may be confounded by a short sample period and ongoing human capital investments, but the research design provides a unique setting for testing theories of statistical discrimination.

Should we publish these records or not?

I put the above up immediately I saw the abstract. Now I’ve seen another abstract that is equally relevant to the issues of discrimination in the labour market – and who should suffer it. It’s closer to my heart, because I detect a ‘lemons’ effect at the bottom end of the market, something I’ve observed in my own behaviour as a hirer of labour.

Beyond Signaling and Human Capital: Education and the Revelation of Ability by Peter Arcidiacono, Patrick Bayer, Aurel Hizmo
In traditional signaling models, education provides a way for individuals to sort themselves by ability. Employers in turn use education to statistically discriminate, paying wages that reflect the average productivity of workers with the same given level of education. In this paper, we provide evidence that education (specifically, attending college) plays a much more direct role in revealing ability to the labor market. We use the NLSY79 to examine returns to ability early in careers; our results suggest that ability is observed nearly perfectly for college graduates but is revealed to the labor market much more gradually for high school graduates. As a result, from very beginning of the career, college graduates are paid in accordance with their own ability, while the wages of high school graduates are initially completely unrelated to their own ability. This view of ability revelation in the labor market has considerable power in explaining racial differences in wages, education, and the returns to ability. In particular, we find no racial differences in wages or returns to ability in the college labor market, but a 6-10 percent wage penalty for blacks (conditional on ability) in the high school market. These results are consistent with the notion that employers use race to statistically discriminate in the high school market but have no need to do so in the college market. That blacks face a wage penalty in the high school but not the college labor market also helps to explains why, conditional on ability, blacks are more likely to earn a college degree, a fact that has been documented in the literature but for which a full explanation has yet to emerge.

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