This happens whether or not the employer is right about the relative rates of drug use. If the employer is wrong, that employer will bear some losses by failing to hire quality candidates, and especially when labour markets are tighter. But, worse, initial misperceptions on relative drug use can turn into a bad self-reinforcing equilibrium: if everyone is going to think you're a stoner regardless of whether you do drugs, why not at least enjoy the consumption benefits? We then get the same kind of pernicious equilibrium that Glenn Loury talks about in his work on discrimination.
One way of breaking that equilibrium is to allow employers to require drug testing: it lets clean employees quickly demonstrate that they're clean and consequently breaks the pooling equilibrium. Drug-using potential employees are worse off, because they can't mask type as easily, but those who aren't benefit by the separation.
That's the theory. Abigail Wozniak shows that the empirics hold up. Here's an early ungated version of her paper; here's the NBER Working Paper.
Nearly half of U.S. employers test job applicants and workers for drugs. A common assumption is that the rise of drug testing must have had negative consequences for black employment. However, the rise of employer drug testing may have benefited African-Americans by enabling non-using blacks to prove their status to employers. I use variation in the timing and nature of drug testing regulation to identify the impacts of testing on black hiring. Black employment in the testing sector is suppressed in the absence of testing, a finding which is consistent with ex ante discrimination on the basis of drug use perceptions. Adoption of pro-testing legislation increases black employment in the testing sector by 7-30% and relative wages by 1.4-13.0%, with the largest shifts among low skilled black men. Results further suggest that employers substitute white women for blacks in the absence of testing.It feels good to oppose mandatory testing, thinking that it somehow is nicer for minority groups. But that opposition mostly works to encourage employers to substitute over to groups that they believe are less likely to take drugs. Another for the continuing series here on feeling good while doing harm.
I note this now because Twitter tells me that Radio New Zealand will be talking drug testing in 15 minutes.