Are ethnic pay gaps the next big reporting issue?


In the UK, as in most developed countries, ethnic minorities are paid on average less than the white British majority.  Since ethnic pay gaps are remarkably persistent, the UK government has launched a consultation on whether employers should report their ethnic pay gaps in a similar way as they are now reporting the gender pay gap.

Figures of different colours

A number of factors should be considered when reporting ethnic pay gaps.  Research has shown that ethnic pay gaps differ across groups [1].  Figure 1 shows ethnic pay gaps among selected groups of men and women: the value zero refers to the average pay of white British men, while the negative bars show the average pay gaps for minorities.  The bar for white British women represents the gender pay gap compared to white British men, which is about 20 per cent.

Graph

Among men, most ethnic minorities are paid less than white British men, although with important variations: while Indian (and Chinese, not shown in Figure 1) do not experience pay gaps compared to white British people, Bangladeshi (and Pakistani, not shown in Figure 1) experience the largest pay gaps.  Among women, many minority groups are paid on average more than white British women (i.e. they have smaller pay gaps compared to white British men).  This pattern has been found also in other countries and may have various explanations [2].

To avoid confusing the issues of gender and ethnic pay gaps, ideally ethnic pay gaps should be reported separately by gender, where pay of ethnic minority men is compared to pay of white British men, and pay of ethnic minority women is compared to pay of white British women.

Another important factor in the reporting of pay gaps refers to measurement.  Should employers report the mean or the median gap?  This is not a trivial difference.  Mean pay gaps are rather sensitive to relatively minor changes in the workforce that do not substantially change the position of the minority group.  For example, an employer hiring a woman in a highly paid managerial position will experience a large decrease in the mean pay gap.  This does not mean, however, that the position of women working for that employer has improved.  The median pay gap, on the other hand, would barely change since it compares pay of men and women in the middle of the pay distribution for their gender.  It is therefore preferable to report the median pay gap – instead of the mean – to have a more informative measure of the position of minority groups, especially in those cases where the ethnicity pay gaps refer to a relatively small number of employees.

Finally, how should pay gaps reporting look like?  Besides reporting the pay gaps, employers could provide information about the position of women and ethnic minorities across types of occupations and across pay grades within occupations and reflect on whether pay gaps are related to concentration in certain occupations, lack of career progression, or other factors.  A narrative description of what are the drivers of the gaps and a better understanding of why there are pay gaps is the necessary first step to identify actions to reduce pay gaps and find solutions to the problem.

The author is Simonetta Longhi, University of Reading

References

[1] Longhi, S. and Brynin, M. (2017) The Ethnicity Pay Gap, Equality and Human Rights Commission, Research Report 108.  https://www.equalityhumanrights.com/en/publication-download/research-report-108-ethnicity-pay-gap 

[2] Longhi S. (2017) Racial Wage Differentials in Developed Countries, IZA World of Labor, 2017: 365.  https://wol.iza.org/articles/racial-wage-differentials-in-developed-countries/long 



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