The Economics of Credit Reports

I stumbled upon a Mises.org video originally aired on CNN that pits J.H. Hubert against some "consumer advocate." Hubert argues that credit checks for potential employees are, by common sense, indicative of a given employee's work reliability, that is, a lower score should be positively correlated with more work absences, tardies, etc. as compared to a person with a higher credit score. I like the argument because it is intuitively appealing. The "consumer advocate," however, maintains that there are no statistical studies proving that this correlation necessarily holds, and so employers shouldn't be allowed to discriminate on the basis of a FICO score.

Riiight. Empiricists sound really dumb sometimes.

But, I went through 3/4 of the video and didn't hear the most basic argument from an economics standpoint come up, that is, that if the demand for laborers with lower credit scores fall, then the demand for laborers with higher credit scores must by de facto increase, establishing a wage differential between the two classes. If, as our "consumer advocate" maintains, there really is no difference between work reliability and overall performance between the two classes, then there are profits to be made by "daring" entrepreneurs willing to hire from the lower-scoring group. These profits would be noticed by other entrepreneurs, and over time, the demand for lower-scoring laborers would increase which will, by default, decrease the demand for higher-scoring laborers, eliminating any wage differential between the two groups.

Thus, our "consumer advocate's" argument is shown to be a paper tiger, because there's really nothing to worry about.

Unless we assume that employers are stupid and can't recognize profit opportunities. But if this is true, why doesn't our "consumer advocate" become a hiring manager somewhere, making the big bucks by hiring people with poor credit?

Frankly, I like the argument that, "It's my business, my job that I'm looking to give to somebody else, and it's nobody else's damn business who I hire for it."