Modeling the Behavior of the 4/5ths Rule for Determining Adverse Impact: Reasons for Caution

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Abstract

The Equal Employment Opportunity Commission's 4/5ths rule has been used for over 20 years in applied psychology and employment law. The rule signals that there is adverse impact when the protected group selection ratio is less than 80% of the highest scoring group's selection ratio. We conducted several simulations and found, consistent with some previous management science literature, that the 4/5ths rule often resulted in false-positive readings of adverse impact even when there were no underlying (population) standardized group differences between subgroups. We then incorporated tests of statistical significance and found that adding such tests to the 4/5ths rule eliminated many false-positive indications of adverse impact. We also examined simulated selection systems based on meta-analytic values from the selection literature. The frequency of adverse impact signals from the 4/5ths rule increased markedly relative to simulations with no subgroup population differences. Adding statistical tests mitigated the number of indications of adverse impact to some extent.

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