Last reviewed 11 October 2018

The Government has launched a consultation asking for views on what ethnicity pay information should be reported by employers, to allow for meaningful action, and who should be expected to report. Here, Tricia Palmer HR consultant, interim director and leadership trainer, looks at pay inequalities and the concept of the ethnicity pay gap.

Much has been written in recent months on the gender pay gap, with the reporting deadline of April 2018 having now passed. There are however much broader issues in relation to inequalities in pay, and ethnicity is one of them. The reasons for pay gaps are complicated and societal, and this article reviews the recent literature in relation to the ethnicity pay gap, mainly drawing from research by the Institute for Social and Economic Research (ISER), which was commissioned by the Equality and Human Rights Commission (EHRC) and published last August.

This research seeks to understand the relationship between pay and ethnicity, where the gaps lie and, where possible, the factors driving the pay gaps. One thing is clear and that is the issue of pay and ethnicity is far more complex than that of pay and gender, which is binary — ie you are measuring female and male pay against each other. With ethnicity it is misleading to simply look at a binary level, say the pay of white people compared to black, because the trends are very different depending on race, religion and ethnicity, and whether individuals are British born or immigrants. In addition, while gender plays a further role in defining pay levels, comparisons of the same gender but different ethnicity yield some interesting results. So, for example immigrant Bangladeshi women have significantly less earning power than white males, but black Caribbean, Chinese and Indian women appear to do consistently well compared with white British women.

There are many illuminating facts in the research, but it is clear we are just beginning to scratch the surface, and it will be some time yet before we fully understand the situation, especially as there is currently no legal requirement to publish pay and ethnicity data.

Issues of methodology

Given the lack of published data on pay and ethnicity, the ISER used data from the Labour Force Survey (LFS) over the period from 1993–2014. The LFS contains information relating to demographic characteristics, labour market status and job characteristics, and therefore provides a rich source of data to enable comparisons. It is the only data set that provides information on pay and ethnicity with a large enough sample size to provide a focus on the largest ethnic communities in the UK; namely Indian, Pakistani, Bangladeshi, black African, black Caribbean and Chinese. In addition, it enables comparisons between immigrants and British-born people of the same ethnicity. Unfortunately, this information is a little old and therefore does not give insight to any possible changes over recent years, but the longer term trends have shown little sign of the narrowing of the ethnic pay gaps overall. It also does not cover white immigrants, due to their diverse nature. This is probably missing an important area of research, particularly relating to the pay of white Eastern European immigrants. The analysis relating to religion only covers the period from 2002–2014, as the questions on religious affiliation have only been asked since 2002, but there are some interesting findings here which this article will discuss. The EHRC holds the view that pay gaps are a reflection of broader inequalities in society, and therefore the research also covers variable factors such as education, hours worked, occupation and age — particularly as age may be taken as a proxy for experience. These variables are important in trying to understand the reasons for pay gaps — ie do they relate to matters of fact, such as education level or are there discriminatory issues at play here? This is particularly important when deciding on actions to mitigate the pay gaps because the cause of the issue will require significantly different approaches.

The report defines the pay gap as the difference between the average hourly rates of different groups of people, with white British people representing 100%. Anything less than 100% is defined as a pay gap, anything over is expressed as a pay advantage. It focuses on paid employment and does not take into account the self-employed. This is significant because self-employment is more likely among some ethnic groups and may not be out of choice but arising from the inability to find work. In addition, it does not take account of those not working at all, which may skew some of the results. Nonetheless, this is a comprehensive report, which delves into the intricacies of race and pay. Unlike previous reports which have compared pay with white British men, this report has compared ethnicity with the same gender. This should give a better analysis of ethnicity pay gap as the effects of gender are removed.

What we know so far

Previous research has shown that immigration plays a part in the pay gap, as new arrivals may face difficulties with language, customs and lack of connections. Often overseas qualifications are not accepted and immigrants may see a “downgrading” of their occupation, with many working in areas for which they are overqualified. For those immigrants who have been in the UK for a significant period of time or are British born the picture is much rosier and the pay gaps are smaller. It would appear that this is linked to the language ability, knowledge of how things work and UK-based qualifications.

Many studies have focused on discrimination as the root of the pay gaps, but this is quite difficult to pin down statistically. However, there is substantial evidence in the literature that people from ethnic minorities suffer discrimination in recruitment. A common way of testing this is to send fictitious CVs to apply for real vacancies. Equivalent CVs are sent to employers with the name indicating race or ethnicity. The research consistently finds that individuals with apparently foreign-sounding names are less likely to be called for interview. This implies that some form of discrimination is taking place, possibly due to individuals having stereotypical views of people from certain races.

Another area of research has looked at why ethnic minorities may receive lower pay than white British people relates to personal characteristics (such as age, education, etc) and is often defined as the “explained” part. The pay gap that remains is the “unexplained” part, which does not necessarily mean that it is due to discrimination. There could be other factors at play here such as self-employment or unemployment which changes an individual’s ability to earn in the future. It is therefore important to take as many variables into account as possible when considering the determinants of the pay gaps.

What is interesting to note is the impact of occupational segregation on the ethnic pay gaps. For example, 41% of black Caribbean and 47% of black African immigrants work in the health sector compared to 20% of British-born white people (Dustmann and Fabbri, 2005). Ethnic minorities generally are over-represented in low-paid occupations, such as sales, catering, hairdressing, textiles and clothing manufacturers. They are also under-represented in the areas where they appear to have a pay advantage, such as clerical/secretarial work, communications, and buyers and brokers/agents.

This complex picture does not take away from the fact that some characteristics which explain the pay gaps, such as lack of qualifications, concentration in low-paid occupations and periods of unemployment may themselves be the result of discrimination and social disadvantage.

This article now goes on to try and look at the complex picture of the earning power between ethnic minorities born in the UK and recent immigrants, and the pay gaps where there are different religions and differences between men and women within ethnic minorities.

Employment and pay gaps

The data on pay gaps need to be taken in the context of a number issues, including that of employment rates where white British and Indian men are at the highest at 70%, and Pakistani and Bangladeshi women at the lowest at below 30%.

Pay gaps for male ethnic minorities

Overall the white British group outperforms the ethnic minorities, with the exception of Indian and Chinese men (both born in the UK or immigrants) and British-born black African men, where the gaps are negligible. The trend has been for Indian men to track the position of white British men, while black Caribbean men have been slowly catching up, with Chinese men now starting to move slightly ahead. Immigrant Pakistani and Bangladeshi men had severe pay gaps, not only in the overall sense but also when they are working in the same occupations as their white British counterparts. Male Bangladeshi immigrants experienced the biggest gap at 48%, while British-born Bangladeshi men had a gap of 26%. Pakistani immigrant men were showing a gap of 31%, while British-born Pakistani men were a bit less at 19%. British-born black Caribbean men were experiencing pay gaps of 7%, while Caribbean male immigrants had gaps of 17%. Black African immigrants were experiencing a gap of 19%, although those who were British born earned roughly the same as white British men. There is very little evidence of the narrowing of the gap and for some groups they have actually increased. Indeed several ethnic minorities have high proportions paid less than the living wage, with almost half of Bangladeshi men and a third of Pakistani men below the living wage. This compares to a fifth of British men. This is partly explained by the fact that Bangladeshi and Pakistani men are more likely to be found in the low pay occupations. In addition, they tend to be younger than white British males. Black African male immigrants are also over-represented in low-paid work and have low qualifications — both of which will drag down earning power. Interestingly both British-born and black immigrant Caribbean men are over-represented in low-paid occupations and under-represented in the higher qualifications category, but these factors only appear to account for a small proportion of their pay gaps, while the rest is unexplained. This means there are other factors at play here, one of which could be discrimination.

Pay gaps for female ethnic minorities

The picture for ethnic minority women was somewhat different with the pay gaps being much smaller than those for ethnic minority men, and in some cases there was a pay advantage with black African British women earning 21% more than white British women. Female Pakistani and Bangladeshi immigrants were experiencing a pay gap of 12%, somewhat less than their male counterparts, but this should be taken in the context of only 30% of them being in paid employment. While the difference in the proportions of those on less than the living wage is less stark than it is for men, it should be noted that low pay is more prevalent for women in general. Around 30% of white British women are on less than the living wage, compared with 40% of Bangladeshi women and just over a third of Pakistani women. Again this has a lot to do with Bangladeshi and Pakistani women tending to be found in the low-paid occupations.

It should also be noted that there are other factors influencing pay here. London generally has higher levels of pay, but it also has the highest level of ethnic minorities. This serves to narrow the national pay gap but does not cover the regional differences. Some ethnic minorities also have higher qualifications than white British people and therefore, on average, are paid more.

What drives pay gaps?

There are some distinct characteristics which drive the pay gap, one of which is age. Ethnic minorities on average tend to be younger than white British people and since pay often increases with experience, which is linked to age, this characteristic explains some of the gaps.

Education is another predeterminate of pay, and studies have shown that most ethnic minorities have higher qualifications than white British people (Brynin and Longhi, 2015); the exceptions of being Pakistani and Bangladeshi immigrants and black Caribbean people. However, among women none of the ethnic minorities had lower qualifications than white British employees. Not surprisingly immigrants had a higher proportion of other qualifications, which is probably due to overseas qualifications not being recognised.

As we have seen elsewhere, part-time and temporary jobs attract lower pay and ethnic minority men are more likely to work part time (with the exception of Indian men) and therefore earn less. Pay also increases with job tenure and again ethnic minority men are more prevalent in temporary work. In contrast, less ethnic minority women work part time than white British women, with the exception of female Bangladeshi and Pakistani immigrants. However, ethnic minority women are generally more likely to be found in temporary jobs, which have a shorter tenure, and with the exception of Chinese and Indian women, they are also more likely to work in the public sector.

Impact of characteristics on pay gaps

The ISER endeavours to disentangle the impact of characteristics on the pay gap from “unexplained” reasons, one of which could be discrimination. To do this it has analysed the data taking into account a range of personal factors, including:

  • age (as a proxy for experience)

  • qualification — highest level demonstrating skill

  • marital/cohabiting status

  • dependant children.

It also considered the following variables relating to the job:

  • type of occupation

  • years of tenure

  • full or part time (less than 30 hours a week)

  • usual number of hours worked

  • overtime (paid and unpaid)

  • temporary or permanent job

  • public or private sector

  • geographical location.

So, what does this all tell us; in general these characteristics almost completely explain the pay gaps for women and British-born ethnic minority men. However, the pay gaps for black immigrants men remain unexplained. It is clear that certain characteristics, particularly occupation and levels of qualifications explain the pay gaps for both genders, in some cases to give a pay advantage but in most cases not. The high level of concentration of ethnic minorities in London, where pay is generally higher tends to mitigate the pay gaps for men and explains the pay advantage for women. What is concerning is that Muslims are on average paid less than people with no religion, particularly Pakistani and Bangladeshi men — however this should be treated with some caution because there is clearly a strong association between ethnicity and religion, and therefore it is not easy to separate the two. Some British-born ethnic minorities have no pay gaps, but their young age and short time in jobs tend to pull their pay down.

Pay gaps for Pakistani men

The pay gap is 31%, half of which can be explained by their characteristics, a large amount associated to be a Muslim (however it should be noted that only a very small proportion of Pakistani men are non-Muslims, so this isn’t very meaningful). The rest is determined by being part time and in low-paid occupations. They are more likely to live in London and immigrants are more likely to be married — both of which push up pay which masks the level of difference in pay. It should be noted that being married does not in itself push up pay but signifies other factors such as stability.

The pay gap for British-born Pakistani men is just under 19%, which is smaller than immigrants and is completely explained by their characteristics, such as age and hours worked, but they tend to be better qualified, having higher qualifications such as degrees and diplomas, which reduces the pay gap.

Pay gaps for Bangladeshi men

Immigrant Bangladeshi men had the highest pay gap at nearly 48%, which reduces to just under 31% once the characteristics are taken into account, leaving a 17% gap “unexplained”. The reasons for the gap are similar to those for Pakistani men — religion, over-representation in part-time roles and low-paid jobs. The gap is partly, though not significantly, mitigated by positive factors such as being married, working in London and working fewer hours (which pushes up the hourly rate).

The pay gap for British-born Bangladeshi men is just under 26%, about two-thirds of which is explained by their characteristics. The reasons are the same as above; predominantly age and being Muslim although, in this case, age plays a greater role in the differences than religion. Again, the gap is partly reduced by working in London and working shorter hours.

Black African men

Black African men who have settled in the UK experience an overall pay gap of 19.4%, which is not explained by their characteristics. The positive and negative factors appear to balance each other out — so the over-representation in low-paid roles and tenure drag the pay down, but factors such as working in London and higher qualifications for some pull the pay up. This demonstrates the importance of looking at each factor in turn, and the complexity of trying to explain the pay gaps.

Black Caribbean men

Black Caribbean men who have settled in the UK experience a pay gap of 17.4%, only 3% of which is explained by their characteristics, namely over-representation in “operative” occupations and under-representation at the higher levels of education. The pay gap is reduced by their concentration in London, older age and fewer hours worked. The picture is the same for British-born black Caribbean men, but the gap is less at just under 7%.

Pay gaps for ethnic minority women

There is less to comment on here than ethnic minority men, as in general there are no pay gaps among women from different ethnic backgrounds, except for Pakistani and Bangladeshi immigrants, which while lower than their male counterparts are still significant. Pakistani and Bangladeshi women settling in the UK are paid 11.5% and 11.8% respectively less than white British women. For Pakistani women these gaps are mostly explained by their characteristics; concentration in low-paid work and short job tenure. Again, the gap is partly reduced by their concentration in London. For Bangladeshi women the gap reduces to 8% once the characteristics are accounted for, being Muslim and working in caring and leisure occupations and in short tenure roles being the main factors. The London effect also reduces the pay gap.

Other groups, such as Indian, British black African and Caribbean all appear to have higher pay on average than white British women, which is only partly explained by the London factor and higher qualifications.

How do ethnic minority men and women compare?

Over the period considered by the ISER British women had a pay gap on average of 23.6%, although the latest government statistics now state this to be just over 18% and the lowest gap ever to be recorded. Indian women are shown to earn more than white British women during this period, but still less than white and Indian men. The report states that the pay gap for Indian immigrant women is 19.6% compared to white British men, but only 7% for British Indian women. The pay gaps for both Pakistani immigrant men and women are larger than the pay gap for white British women when compared to white British men, although those that are British -born experience a similar pay gap to white British women. Among Bangladeshi people, women have a smaller pay gap than men when compared to white British males. While black Africans (male and female) experience similar pay gaps to white British women. Among black Caribbeans there was not much difference between the men and women with both experiencing around 7% gap compared with white British males.

Conclusions

The report concludes with the following observations.

  • Whether an individual is born abroad or in Britain is a key determinate of the pay gap, with the majority of male immigrants experiencing pay gaps.

  • Black African, Chinese and Indian men born in England are generally paid the same as white British men.

  • British black Caribbean men all experience pay gaps.

  • With the exception of immigrant Pakistani and Bangladeshi women all other ethnic minority women are paid the same or more than white British women.

  • Almost 50% of Pakistani men and 33% of Bangladeshi men were paid below the minimum wage, while almost 40% of Bangladeshi women and just over 33% of Pakistani women were paid less than the living wage. This compares with 20% of white British men and 30% of white British women. These figures have only changed slightly over recent years, when in 2017 the figures were 17% and 27% respectively. The high levels of low pay in these groups of ethnic minorities demonstrates their prevalence in low-skilled occupations.

  • The characteristics of different ethnic groups which explain pay gaps relate unsurprisingly to age, occupation and educational attainment, and in some cases being in part-time work and temporary jobs. Being Muslim seems to correlate with low pay, but this is deemed to be more to do with the link between Islam and ethnicity and not necessarily the religion itself.

  • The preponderance of ethnic minorities in London, where pay is generally higher goes some way to mitigating the pay gap.

  • Pay gaps for black immigrant men (African and Caribbean) are not explained by their characteristics and therefore there is something else at play here. This cannot be proven as discrimination, but there is some research which appears to support this theory.

  • Most British-born ethnic minorities (with exception of black Caribbean men) had higher levels of educational attainment than their white British counterparts, but despite this they are more likely to be found in the lower paid occupations.

  • Discrimination may be a factor in these findings, but it is also likely that some ethnic minority groups have difficulties in penetrating social and professional networks, which would assist them in accessing the higher level professions.

  • In addition, ethnic groups may have differing attitudes to career aspirations, which may also be linked to social disadvantage.

While the report is extremely comprehensive in its dealings with the data it does not give us much useful insight into the possible solutions, save to say that more research into “unexplained” gaps is required. It also suggests that educational attainment for the underperforming groups should be increased and career development pathways investigated.

Ethnicity pay gap reporting

Since the requirement to report the gender pay gap came into force there has been some pressure to also report on the ethnicity and disability pay gaps. The independent McGregor-Smith 2017 Review on Race in the Workplace recommended the introduction of ethnic pay gap reporting to help boost the economy. The reporting regime proposed was similar to gender pay reporting but with a requirement for employers with 50 employees or more, to publish the breakdown of staff by reference to pay and race. The Department for Business, Energy & Industrial Strategy has tasked the charity Business in the Community with carrying out a review of how many companies are reporting ethnicity pay gaps one year since the recommendation was released. There may, however be more difficulties with this than the gender pay reporting as the collection of race data by employers is far less comprehensive than those with gender information. This will provide a significant challenge for employers to get their ethnic minority data up to scratch, and clarity in advance by the Government as to the ethnic groupings it will expect employers to use. On 11 October 2018, the Minister for Small Business, Consumers and Corporate Responsibility, Kelly Tolhurst, launched a consultation asking for views on what ethnicity pay information should be reported by employers, to allow for meaningful action, and who should be expected to report.

Available at assets.publishing.service.gov.uk, the consultation paper is open for comment until 11 January 2019.

However, some organisations have already taken it upon themselves recently to carry out pay audits relating to ethnicity. The Greater London Authority (GLA) group carried out a pay audit in 2018 which found high-ethnicity pay gaps across public sector organisations, including a finding that median hourly pay for white employees was 16.7% more than the median hourly pay for black and minority ethnic employees in the Metropolitan Police Service. The highest pay gap was 37.5% at the Old Oak and Park Royal Development organisation, while the lowest was 0% at the London Fire Brigade. The GLA is already undertaking some activities to work at reducing the pay gap:

  • anonymous recruitment

  • diverse recruitment panels

  • working with staff to establish a BAME Network

  • unconscious bias learning

  • new governance body led by the Head of Paid Service

  • Business in the Community membership

  • developing an action plan and providing updates on progress in future ethnicity pay gap reports.

It is evident that the ethnic minority pay gap is a complex area, which will not simply be solved by a requirement to publish data, although this would be a good start. There is limited organisational information around this issue, and for many employers it is not high on their list of priorities. One organisation I have been working with has started to analyse its ethnicity pay data, which initially showed promising signs in that the gaps were relatively small and in some cases there was a pay advantage for ethnic minorities. However, on greater analysis it became clear that while there was a good balance of ethnic minorities working at all levels of the organisation the number of ethnic minorities employed overall was particularly low, making some of the findings unreliable.

As the data shows the reasons for the gaps vary according to the ethnic minority group and is more significant for men than it is for women, although this is partly because white British women are paid less than white British men. For British-born ethnic minorities the reasons for the pay gaps are associated with young age, lack of qualifications and occupational segregation. These common themes equally apply to immigrants, but they also lack language skills, access to professional networks, educational attainment and often their overseas qualifications are not recognised.

There is a lack of literature on how to tackle the issue, and only a few broad-brush approaches are discussed. These include:

  • changing recruitment practices (anonymised application forms and diverse panels)

  • increasing educational attainment for underperforming groups

  • developing career paths for individuals starting to work.

Some notable organisations (a large management consultancy and a government department) are setting targets for their very senior roles, but without clear action plans to achieve this it is difficult to see how effective it will be. This is undoubtedly an issue that will continue to cause some debate for the foreseeable future.

Bibliography

Tricia Palmer is a consultant in HR, interim director and leadership trainer. She is a regular contributor to Croner-i for Local Government. Croner-i for Local Government is an online employment law and practice reference source designed specifically for HR managers and their teams in local government.