August 28, 2012—Are there sound economic reasons for screening job applicants on the basis of employment status? What are the trade-offs of such screening? And what are the implications of legislative measures to protect the unemployed as they seek work? Nathan economists Chen Song and David Sharp explored these issues in “Rethinking the Unemployment Status of Job Applicants,” published in the July 19 issue of Law 360’s expert analysis section.
Song and Sharp explain how employers screen applicants with characteristics suggestive of productivity. These include easily observable characteristics, such as education and experience, as well as characteristics believed to signal productivity, such as employment status. The costs of screening are justified when employers end up making offers to qualified candidates who are likely to be productive, unlikely to require extensive training, and less likely to quit. Empirically right or empirically wrong, employers tend to view unemployment as a signal of low productivity and declining skill. Still, hiring the unemployed has some advantages—they are usually able to start work immediately and are likely to accept a lower starting wage.
Employment status might not be a valid indicator of productivity. An applicant, for example, may have lost his or her job along with thousands of others when a service line closed or when relocating with a spouse. It makes economic sense for an employer to evaluate other traits. In addition, rejecting applicants on the basis of employment status can create a vicious cycle as the unemployed remain jobless for longer periods and have to apply for many more jobs to raise the odds of being hired. The end result is high unemployment.
Since passage of the American Jobs Act in 2011, the Equal Employment Opportunity Commission has heightened scrutiny of employment screening and many states have considered or are considering legal protections for unemployed applicants. Song and Sharp point out that such measures in effect add to screening out the unemployed: the possibility of litigation costs. Screening on the basis of employment status also has implications for groups protected by Title VII of the Civil Rights Act. Song and Sharp show that an employer who uses unemployment status in screening job candidates may end up with a Title VII disparate impact claim over its hiring practices.