The ethnic pay gap in Britain’s workplaces

In recent decades, there has been sizeable growth in the percentage of employees from minority ethnic groups in Britain’s workforce. Yet ethnic minorities in employment still tend to earn less than similarly qualified white employees.

Could this be because ethnic minority employees are more likely to work in low-paying environments? Or are they actually paid less than white employees within the same workplace? Researchers from Bayes Business School (Dr John Forth), University of Cyprus (Dr Nikolaos Theodoropoulos), and University College London (Professor Alex Bryson) sought an answer, and their findings have been published in the research paper The Role of the Workplace in Ethnic Wage Differentials.

By using data from the British Workplace Employment Relations Surveys (WERS) from 1998, 2004, and 2011, the researchers explored the magnitude of ethnic wage gaps among full-time employees, and investigated the degree to which it may be the result of discrimination.

The researchers found that there is a high degree of segregation in Britain’s workplaces. Around one third of employees in Britain have no co-workers from a non-white ethnic group, and when ethnic minority employees are present, they often account for a relatively high share of all workers.

However, the segregation of ethnic minority and white employees into different types of workplaces does not contribute to the aggregate ethnic wage gap. Instead, most of the ethnic wage gap exists within the workplace. Male employees from ethnic minority backgrounds earn around 11 per cent less than their observationally-equivalent white male co-workers, on average. Among female employees, the gap is around 7 per cent.

This is the first study to show that most of the aggregate wage penalty exists within the British workplace, between observationally equivalent co-workers.

One interpretation for the existence of these wage gaps is that non-white ethnic minority employees are being treated unfairly when employers set pay. This is hard to prove, but the research examines alternative explanations. One possibility is that ethnic minority workers may accept lower wages because the job has other attributes that they value, such as flexibility or good training opportunities. However, the authors find that non-white, ethnic minority employees are less satisfied with their pay than white peers even after accounting for these other factors, suggesting that they are not trading pay for other benefits.

The study also shows that ethnic minority employees are more likely to feel over-skilled in their role. When asked to rate the extent to which they feel the skills they possess match those required to do their job, non-white employees were found more likely to judge their skills were higher than those needed. This suggests that ethnic wage gaps are not wholly to do with differences in skills.

The broad picture is consistent with ethnic minority employees being treated unfairly in wage setting within the workplace.

The study identifies the importance of job evaluation in encouraging fairer pay and a more transparent pay structure. Job evaluation is used to systematically assess the relative value (or comparable worth) of a job in relation to other jobs within the workplace. The study finds that the average ethnic wage penalty in workplaces with a job evaluation scheme is one-third smaller than in workplaces that operate no scheme. The increased transparency that such schemes can engender is one route, it seems, towards fairness in wage setting. The ethnic wage penalty is also one-third smaller in workplaces with a recognised trade union.

In contrast, the ethnic wage gap is no smaller in those workplaces that have voluntarily reviewed relative pay rates by ethnicity than in workplaces that have not. The UK government has recently decided against legislation that would require all large companies to report their ethnic pay gap, even though a requirement for all firms with 250 or more employees in the UK to report on their gender wage gap has been found to reduce the gender wage penalty by 15 to20 per cent. The research by Dr Forth and his colleagues indicates that leaving employers voluntarily to review pay rates is unlikely to lead to progress, unless it also leads to changes in how companies actually set wages.

The Role of the Workplace in Ethnic Wage Differentials is published in the British Journal of Industrial Relations