Ethnicity: can the gender pay gap trick be repeated?

Blog posts

16 Oct 2018

Duncan Brown

Duncan Brown, Head of HR Consultancy

The Government’s consultation on compulsory ethnicity pay reporting, launched by Prime Minister Theresa May last week, had a somewhat familiar air.

IES responded, along with more than 700 others, to the Government Equalities Office’s consultation on gender pay reporting back in 2015. Here we are just three years later, with more than 10,000 employers having reported on their seven required gender pay gap statistics for 2017/18, and almost 400 have already reported ahead of the second deadline in April 2019. Chief executives are apparently falling over themselves to commit to targets to reduce their gaps.  

So perhaps it is not surprising that the government is seeking to repeat the trick for other pay-disadvantaged groups. As the Equality and Human Rights Commission (EHRC) noted in publishing its research and recommendations on disability and ethnicity pay gaps, ‘insight from mandatory gender pay gap reporting has shown the power of transparency in driving focused action.’

In 2016 the government asked Baroness McGregor-Smith to examine the barriers faced by people from ethnic minorities in employment. One of the recommendations from her report Race in the Workplace  was that the government should legislate for mandatory reporting of ethnicity pay data. The government’s response was that they expected business to lead in taking this forward voluntarily, mirroring their original approach to gender pay.

The government did promise to monitor progress and act if needed. However their first report of findings, also published last week in the Race Disparity Audit, shows almost no progress has been made across McGregor-Smith’s recommendations. On reporting for example, just 11 per cent of employees reported that their organisations collect data on ethnicity pay. In response to these findings, the Audit advises that BEIS is now consulting on a mandatory approach to ethnicity pay reporting.

The consultation

‘Our focus now is on making sure UK organisations and their senior management teams are truly reflective of the workplaces they manage, and…help(ing) employers identify the actions needed to create a fairer and more diverse workforce.’ 

Prime Minister Theresa May at the consultation launch, October 2018

The consultation document refers to many examples where the scenario outlined in the quote above has been found not to be the case. Examples where, in reality, the colour of your skin, whatever the nice employer diversity policies say, influences your chances of getting a job and your level of pay if you do. As the EHRC research finds, ‘people who have a disability or are from an ethnic minority background are more likely to experience discrimination in recruitment, promotion and pay reward decisions. They are also more likely to be in part-time, lower-skilled, and/or lower-paid work, and in jobs with shorter contracts.’

The consultation questions follow the gender pay model, focusing on identifying benefits and major barriers. This includes the employer size threshold that should be applied, identifying the common definitions and categories that should be used, and summary statistics that should be reported. They also address whether action plans and narratives should be included (they are not compulsory on gender but around two-thirds of reporting employers have included narratives in the first year); and what support and preparation will be required.

This new consultation therefore is largely focused on how and how best to introduce mandatory pay gap reporting for ethnic minorities, rather than whether or not to do it, with the accompanying document revealing clear intentions, ‘so we can establish the best and most meaningful approach to drive change, while ensuring proposals are proportionate and do not cause undue additional burdens on business.’

Achieving this balance between what is right in principle and what can be done in practice has been a key factor in the progress achieved on gender pay, but it will be a harder balance to strike on ethnicity.

The challenges

While IES strongly supports the mandatory publication of ethnicity employment and pay gap information, the barriers here may be greater than they have been on gender, requiring more time and support than the 12 months afforded on gender pay reporting. We would highlight three particular issues, including two on data: the amount and quality; and the categorisation.

The EHRC’s research found that just 3 per cent of employers measure both ethnicity and disability pay gaps and over half of employers reported barriers to collecting data on the ethnicity of employees (51 per cent) and on disability (52 per cent). Concerns included that data collection is too intrusive; too onerous, and that employees do not want to share the information.

The difficulty of establishing the common categorisation and reporting of ethnic groupings is a bigger issue. Arriving at meaningful, sensible, common reporting categories on ethnicity is hard. On gender, the categories were obvious and whatever our quibbles with the exact definitions of the seven required statistics, the common definitions and comparisons have undoubtedly been a key driver of change.

At national level, the Office of National Statistics uses the ethnic group question in the 2011 Census in England and Wales. This has five broad categories, catchily referred to as ONS 5+1 (2011): White; Mixed/Multiple; Asian/Asian British; Black African/Caribbean/Black British and other ethnic groups. The ‘+1’ refers to unknown ethnicity. Then there are 18 specific groups under these five broad categories.

The pay relationships and relativities across these groups, and with white British employees, are complex and vary between categories and from year to year, even at the national level, and they interact with each other and other categorisations such as gender. This will make analysis of the size, location and causation of pay gaps, and actions to address them, much more complicated than has been the case for gender.

The broad categorisation may seem simpler to analyse and act on. Yet some of the categories such as ‘other ethnic groups’ and ‘white’ include multiple groups with different characteristics and probably pay and employment situations, so identifying and addressing gaps will be more challenging.

Just looking at the national data from 2002-14 exampled on the EHRC’s excellent interactive website:

  • The UK’s pay gap between the median wage per hour of two men – one White British and the other a Black African migrant is 21.5 per cent. For Black African men born in the UK, the differential with their white counterparts drops to 0.5 per cent.
  • A male Chinese migrant has a 2.8 per cent pay advantage in median wage per hour over a White British man.

Correspondingly, using the more detailed 18 categories will mean that even if they improve their data gathering, most medium-sized employers will probably have no data in most of the groupings, as their representation in them will be nil or too low to analyse.

Our third area of caution is around actions. Both our previous EHRC research on gender, disability and ethnicity pay gaps, and our practical case work with employers, such as the London Borough of Lewisham, highlights not only the deep-rooted and complex barriers to employment and pay progression for ethnic minorities, but also that different solutions may be required to those that are being used to have most impact on gender pay gaps.

And there is also the classic ‘chicken and egg’ problem of which agenda and initiatives do you progress first: representation, pay or culture? The head of equality at one major UK employer I spoke to, for example, believes that the focus now should be on improving the employment of minority groups and only then working on their relative pay levels. He thinks that mixing the two up could jeopardise improvement in both areas.

Conclusions and next steps

IES believe that there are huge benefits for the UK economy and society, for employers and employees in reporting on their ethnic pay gaps, as there has been in driving action on gender pay gaps. In all of our research greater transparency at national and employer level is associated with lower pay gaps and we unequivocally support mandatory reporting. It does not close gaps on its own but plays a major role in driving actions which do. The gender pay trick can potentially be repeated.

But transparency on gender pay was not easy to achieve, for the UK government or employers, finally being implemented last year seven years after the legislation enabling it had been passed. It will likely be even harder on ethnicity.

Government will need to provide clear and appropriate guidance on the classification system to be used and the actual statistics to report, working in partnership with the EHRC, the Office for National Statistics and bodies such as IES. Practical guidance for different types and sizes of employers will be even more essential. We believe that one to two years preparatory time will be required.

IES will be consulting on the details of our own response to the Consultation over the next eight weeks and the best means of ensuring swift but effective progress. Please do contact us to get involved or share your thoughts.

Access the consultation questions and email me your views.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.