The four-fifths rule is the simplest and most common way of estimating adverse impact. The Uniform Guidelines indicate that the 4/5th's rule is the preferred method for determining adverse impact unless samples are very small or very large. The 4/5th's rule can be computed according to the four steps shown below:
1) find out the selection rate for each protected group that makes up more than 2% of the applicant pool. The selection rate is equal to the total number or applicants within the group that are hired divided by the total number of applicants within that group.
2) Observe which group has the highest selection rate. This is not always the white, male, or "majority" group.
3) find out the impact ratio by dividing the selection rate for each group by the selection rate of the group with the highest selection rate.
4) Determine if the selection rates are substantially different. If the impact ratio is less than .8, there is a 4/5th's rule violation.
Discuss the advantages and disadvantages of the rule.