Who cares about ethnicity pay gaps?

In contrast to politically-driven developments across the pond, over here issues of diversity, equality and inclusion remain high on the HR agenda. One reason for this is that the legislative programme announced by the Labour government includes provision for a new Equality (Race and Disability) Bill. Currently in draft form and therefore yet to be laid before the House of Commons, but expected this spring, the Bill is aimed at:

1.     enshrining in law the full right to equal pay for ethnic minorities and people with disabilities;

2.     introducing mandatory ethnicity and disability pay gap reporting for larger employers (those with 250+ employees) to help close ethnicity and disability pay gaps.

Good employers will want to foster genuine diversity, inclusion, and if not equality of outcome, then at least equality of opportunity and treatment. This means ensuring equal progression and promotion opportunities for all staff, including those from a minority ethnic background.

Having (or developing) a strategy for the identification, analysis and reduction of pay gaps at all levels is an important part of this. The barriers to advancement for minority ethnic staff that can produce pay gaps can also lead to demotivation and disengagement. By contrast, engaging all staff to the same extent should lead to enhanced contribution from employees in every area.

Some employers might be worried that calculating and sharing figures on ethnicity pay gaps could lay them open to claims of direct or indirect race discrimination. However, the experience of the gender pay reporting regulations shows that such fears are unfounded. Having a pay gap or gaps – whether in respect of gender, ethnicity or disability – is not necessarily the same as being guilty of discrimination.

Employers might also be concerned because ethnicity pay gaps are often more complicated than those relating to gender. For example, different ethnicities may mean there is more than one ethnicity pay gap and sample sizes can be relatively small. Moreover, staff may not always be willing to disclose ethnicity information.

But these issues can be overcome. The previous government published detailed guidance here. On confidentiality, the guidance encourages employers to refer to the Race Disparity Unit’s standards for collecting ethnicity data and to base questions on those used in the most recent censuses, using detailed ethnicity classifications wherever possible, and also giving staff a clear option not to respond. For further details, see our article on the guidance here.

As a result of this assistance, many employers are already getting on with the task of collecting ethnicity pay data, sharing the results with staff and working out how to address the issues raised, even in cases where gaps are wide. 

Reasons for gaps

Reasons for ethnicity pay gaps vary and are due to a mix of ‘explained’ factors and ‘unexplained’ factors, in statistical parlance. ‘Explained’ factors involve a range of pay-determining characteristics that are specific to each individual in the survey sample. These could involve the type of work they do, their work location, their qualifications, and more personal characteristics such as age and gender.

On the other hand, ‘unexplained’ factors are unrelated to the characteristics of the job or the individual doing the job. And they are precisely as described, that is, we may not know what they are, exactly. However, in the case of ethnicity pay gaps, such factors could be connected to informal barriers to progression, or what is sometimes called ‘cumulative bias’. This is a term for the demonstrably higher obstacles, such as fewer development opportunities or reduced access to mentoring, that are faced by many minority ethnic employees throughout the different stages of their careers.

The exact balance between explained and unexplained factors can produce pay gaps of different sizes. But the ‘unexplained’ aspect of ethnicity pay gaps is what should most concern employers. It is why, as well as collecting data, organisations also need to identify strategies and actions that can reduce or remove these sorts of biases. This will not only narrow pay gaps but will also lead to improvements in diversity, equality and inclusion at all career stages. This is the main reason why it is worth getting ahead of the expected legislation, and acting now.

Official data on EPGs

In the meantime, the Office for National Statistics has carried out ethnicity pay gap analysis of figures on the earnings of employees across the UK as a whole, using data taken from its Annual Population Survey (APS) and its Annual Survey of Hours and Earnings (ASHE). The latest analysis involves calculation of both ‘raw’ and ‘adjusted’ pay gaps for a number of the most numerous ethnic groups in the UK. The ‘raw’ gaps are based on ‘explained’ factors that are due to work or personal characteristics such as those listed above, as well as the ‘unexplained’ factors also mentioned earlier. The ‘adjusted’ gaps isolate the effect of ethnicity alone, and exclude the effects of work or other characteristics.

The results show that, in 2022, the pay gaps for both the Asian or Asian British, and the Black, African, Caribbean or Black British UK-born employees reversed, from earning more than UK-born White employees in the ‘raw’ series, to earning less than UK-born White employees in the adjusted series. Here are some of the most prominent results in detail:

-         earnings for UK-born Asian or Asian British employees were 11.9% greater on average than those of UK-born White employees on the ‘raw’ series, but when work or personal characteristics were controlled for, the finding was that they were 1.9% less

-         the ‘raw’ gap for non-UK born Asian or Asian British employees was 1.5%, meaning that they earned this proportion less than UK-born White employees. However, once adjusted, the gap widened to 9.7% in favour of UK-born white employees

-         similarly, UK-born Black, African, Caribbean or Black British employees earned 6.5% more than their UK-born White counterparts on an unadjusted basis, but when the effects of ethnicity alone were isolated, the gap changed to one of 5.6% in favour of the UK-born White group

-         for non-UK born Black, African, Caribbean or Black British employees, the ‘raw’ gap was widest of all at 9.2%, but widened even further when adjusted, to 11.9%, meaning that this group earns 11.9% less than UK-born White employees.

Legislation that extends pay gap reporting to ethnicity and disability as well as gender is unlikely to require employers to produce both ‘raw’ and ‘adjusted’ figures, as in the official data above. But it is important to be aware that any pay gap figures produced at organisational level will involve both ‘explained’ and ‘unexplained’ factors, and that the ‘unexplained’ factors often carry a significant weight. 

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