Many economists seem to think that IQ-based hiring is effectively illegal in the U.S.  O’Keefe and Vedder are two prominent voices, but plenty of mainstream labor economists say the same.  The more I read about this topic, though, the more legal IQ-based hiring seems to be.  Three big facts:

1. Though data is spotty, 10-30% of large U.S. employers freely admit that they use cognitive ability tests to make hiring decisions. (see pp.45-7 and references)

2. Cognitive ability testing is only modestly less common in the U.S. than other countries.  Ryan et al’s An
International Look at Selection Practices: Nation and Culture as Explanations
for Variability in Practice
” (Personnel Psychology,1999) surveyed
firms in 20 countries about their hiring methods.  On a 1-5 scale, where 1=”never uses cognitive
ability tests” and 5=”almost always or always uses cognitive ability tests,” the
average U.S. firm scores 2.08, versus 2.98 for the whole sample.

3. When asked, only 16% of U.S. employers who don’t test cognitive ability cite “legal concerns.” (See Terpstra, David, and Elizabeth Rozell.  1997.  Why
Some Potentially Effective Staffing Practices Are Seldom Used.
Personnel Management
26, p.490).  The leading reason they don’t hire based on IQ is that they doubt the usefulness of the tests.

A fourth fact that might explain all the confusion:

4. In the U.S., cognitive ability testing is the hiring tool most likely to be avoided for legal reasons.  The only reason it holds this distinction, though, is that U.S. employers worry even less about the legality of all the other hiring methods. (Terpstra and Rozell, p.490)