What Could Go Wrong? Obama Proposes Allowing Unemployed to Sue for Discrimination

Posted: Sep 29, 2011 4:19 PM

This sounds like a mini-stimulus plan for lawyers that might not cost $1.6 million per job, but could wreak untold havoc on our legal system.  Fans of litigiousness, rejoice:

Advocates for the unemployed have cheered a push by the Obama administration to ban discrimination against the jobless. But business groups and their allies are calling the effort unnecessary and counterproductive. The job creation bill that President Obama sent to Congress earlier this month includes a provision that would allow unsuccessful job applicants to sue if they think a company of 15 more employees denied them a job because they were unemployed.

The provision would ban employment ads that explicitly declare the unemployed ineligible, with phrases like "Jobless need not apply." As The Lookout has reported, such ads appear to have proliferated in recent years, prompting an inquiry by the Equal Employment Opportunity Commission. Democratic lawmakers in both the House and the Senate have introduced similar measures. Obama said recently that discrimination against the unemployed makes "absolutely no sense," especially because many people find themselves out of work through no fault of their own.

Advocates for employers oppose the proposed ban. "We do not see a need for it," Michael Eastman of the Chamber of Commerce told the New York Times.  Lawrence Lorber, a labor law specialist who represents employers, told the paper the president's proposal "opens another avenue of employment litigation and nuisance lawsuits."

My headline asks the rhetorical question, "what could go wrong?"  Quite a lot, actually.  The Atlantic's Daniel Indiviglio provides several helpful non-rhetorical answers to relevant questions he poses on this very subject: 

(1) Is [Unemployment Discrimination] Really A Problem? (No.)

For starters, we have little evidence that this sort of discrimination is playing a significant role in hiring. Yes, prolonged unemployment is a problem. But the reason for this is due to the lack of job openings paired with a skills mismatch. While there might be a handful of instances where employers are shunning the unemployed, no one is suggesting that discrimination is playing a major role in the U.S. unemployment problem.

(2) Will This Proposal Create Jobs? (No.)

But let's pretend, just for argument's sake, that discrimination against the unemployed really does occur with modest frequency. Let's say that one out of ten employers discriminates against the unemployed -- which is almost certainly a much higher percentage than the portion that really does. Let's think about how this might work.

So imagine that Joe is unemployed and applies for a job at XYZ Corp. It turns out XYZ likes to discriminate against the unemployed, so a current employee at ABC Corp, Sheila, is hired instead. Now for this to be legitimate discrimination, we must assume that Joe was at least equally qualified for the job that Sheila got. So they must have similar experience levels. Now that Sheila has left her job, ABC will need to hire someone. Joe will be a prime candidate for Sheila's old job, and it's statistically very unlikely that Sheila's previous employer is also a discriminator.

This story of labor market turnover shows that, even if this sort of discrimination does occur sometimes, it shouldn't cause unemployment to be higher or the duration of unemployment to be much longer than it would have been anyway. At worst, it causes slightly slower wage growth for unemployed Americans.

(3) Will This Proposal Kill Jobs? (Probably.)

Instead, the rule to ban discrimination against unemployed Americans could actually slow hiring. Imagine that you're an employer that is considering bringing on another employee. At this point, you figure you have the money to hire someone now, but you could probably wait six months or a year -- consumer demand in the short-term looks weak. But you hear of a new law that will forbid you to discriminate by not hiring unemployed people. You would never discriminate anyway, but now you worry about the get a huge influx of unemployed applicants you'll get -- after all, millions of Americans are unemployed. And there's definitely a chance that, if you don't hire one of them because a better already-employed candidate is out there, then you'll get sued.

In other words, new laws might seem to be nice, and fair, and "the right thing to do," but government action causes people -- including employers -- to alter their behavior.  The liberal road to (fiscal) hell is paved with good intentions; reality is rife with unintended consequences.  Click through to read Indiviglio's provocative final argument for why discriminating against jobless people might actually be justified.