Written by
Ruth Thomas
Senior Consultant and Co-Founder, CURO

14 July 2020

Gender pay gaps have been a focus in recent years due to emerging legislation, mainly centered in Europe, requiring employers to report on their average pay gaps, or the difference between what men typically earn in an organization compared to what women earn - irrespective of their role or seniority.  

Factors driving average pay gaps often have less to do with pay itself but are more so a consequence of structural or systemic issues in the workplace and society. These create barriers to entry or career progression for certain groups of employees, so it’s not necessarily about equal pay (being paid the same for like work or work rated as equivalent and equal value) but pay equality, which for me means creating an environment where all employees have the opportunity to earn the same.

When it comes to gender pay gaps, we have learned that issues including: lack of flexible working, caring responsibilities and part-time roles being shared unequally, together, with occupational segregation (more men in higher paid industries and women in lower paid industries) and vertical segregation (fewer women in senior and therefore better paying positions) are the main drivers.

However, coming to grips with the factors that cause ethnicity pay gaps is more complex. Not only because each ethnic group has a different experience in society and the workplace, but also because it is difficult to generalize between countries due to different immigration histories.

The recent Black Lives Matter movement highlighting racial inequality has drawn important attention to the fact that organizations of all sizes need to continue or prioritize analyzing wage disparity from this lens and understand what drives ethnicity pay gaps. 

What issues drive ethnicity pay gaps?

  • Occupational and vertical segregation

  • Education

  • First generation immigration status

  • Geographic location

As with gender, occupational and vertical segregation prevail with ethnic minorities being less likely to be in higher paid managerial positions and more concentrated in lowest skilled types of job and occupation.

In the US, the 2019 Bureau of Labor statistics data indicates that 54 percent of employed Asians worked in management, professional, and related occupations - the highest paying major occupational category - compared with 41 percent of employed Whites, 31 percent of employed Blacks, and 22 percent of employed Hispanics. While Black and Hispanic workers are not only more likely to work in blue collar or service jobs, they tend to be concentrated in the lower-wage/skilled jobs including: operators, fabricators, and laborers, rather than higher-paying precision production and craft jobs within those categories.

Last year’s UK Office for National Statistics Study on ethnicity pay gaps found that 11 percent of both Indian and White British workers were in 'manager, director or senior official' jobs - the highest percentage out of all Blacks making up only 5 percent of this category. At the opposite end of the scale, the majority of employees making up ‘elementary’ jobs was Black (16 percent) and then White Other (15 percent) ethnic groups.

Education also has a part to play here, with ethnic minority children facing challenges including: racial and ethnic marginalization, concentrations of minority ethnic groups often residing in deprived areas, and language and cultural barriers. This can then translate into weaker educational achievements which affect pay disparity when education allows access to occupations of higher status offering greater earnings. Yet it is important to understand that there is data to support that where educational achievement is level, ethnic minorities still earn less than their white colleagues, suggesting other factors are still in play.

Additionally, past research has examined what individuals aspire to, as well as what they expect to achieve in terms of educational and career ambition has an impact. Aspirations and expectations may not actually align with one another, as it’s argued that expectations are more determined by the “perceived structure of opportunity” within society or the socio-economic factors and realities. Within the research, it’s noted that minority ethnic groups are able to offset their (on average) poorer financial capital through family norms, values and networks which promote higher goals and ambitions. But regardless of these positive attitudes toward career aspirations, social disadvantage and other factors may impact education and career progression significantly - one being geography.

Geographic location impacts ethnicity pay gaps due to the concentration of ethnic minorities in certain locations. This impacts balanced representation for employers which then leads to pay gaps. 

Interestingly, another major contributing factor leading to pay differentials is status of whether or not an individual is a first generation immigrant. For example, many who are first generation immigrants have issues with language and customs, and also lack the connections that could help them find a suitable job. When immigrants’ qualifications are not recognized in the labor market of the host country, they can experience ‘occupational downgrading’ meaning many are likely to be overqualified for the job they do end up pursuing.

New call-to-action

What can employers do about ethnicity pay gaps?

  1. Collect data on your workforce, including race

  2. Drive accountability from leadership 

  3. Create an actionable plan with measurable goals 

  4. Open up the conversation about race

  5. Understand and tackle unconscious bias

  6. Be transparent

  7. Provide mentorship opportunities

Collect employee data, including race

Data-driven ethnicity pay gap reporting is essential to understanding the different experiences of individual ethnic groups. Only by analyzing employee data can we move beyond anecdotal evidence and subjectivity to truly measure inequality. From there, we can start to understand where disadvantage and barriers occur in order to take corrective action.

Collecting workplace ethnicity data has to be a priority. In the US, the Equal Employment Opportunity Commission mandates the reporting of workforce data from employers with more than 100 employees including race. But in the UK, there is no such requirement and many employees do not have the supporting data. A survey from PWC last year involving 80 significant UK employers, indicated that 75 percent of them didn’t record data. With the stalling of UK legislation, some employees have launched declaration or internal communication campaigns that aim to build trust and start the conversation more openly about race in order for employees to feel comfortable disclosing their status.


Make leaders accountable and create open communication channels

When it comes to actions, driving accountability from the top is critical to success. Agreeing which diversity and inclusion objectives are most important and which shortcomings are most in need of addressing in your organization is just the beginning. Objectives and shortcomings need to then be translated into an actionable plan that sets measurable goals aligned to your accountability framework.

More generally, opening up conversations on race across organizations and giving all employees a safe, comfortable space and voice to share thoughts and ideas is paramount. Many choose to do this through staff networks, encouraging discussions on different experiences to provide insight into unseen barriers and devise practical and creative solutions. It’s all about fostering an inclusive culture where a diverse range of people are fully and happily able to be themselves.

Consider barriers and tackling bias

As with gender, considering barriers to entry for ethnic minorities can have a short term impact on representation. So going back to some of those societal issues mentioned above, challenging educational selection or work experience bias during recruitment can help alongside creating work experience opportunities for everyone - rather than just through existing networks and referrals. Then it comes down to incorporating other approaches such as: drafting job specifications in a more inclusive way, requiring diverse shortlists and introducing diversity to interview panels to tackle any unconscious bias.

Just as important as barriers to entry, consider barriers to progression and the impact on ethnicity pay gaps. Company-wide transparency is crucial so communicating openly around topics including: career ladders, pay and reward guidelines, and how and why people are promoted, helps ensure employees do not deselect themselves based on perceived hurdles. As with recruitment, diversity in selection panels and appropriate manager training can also help tackle unconscious bias issues.

Offer mentor opportunities

When reviewing progression, the UK’s Business in the Community’s Race at Work charter highlighted the importance of mentoring for ethnic minorities who value mentors more, with a greater desire to expand their personal networks than other groups. Senior leaders can operate as active sponsors and use their influence to highlight and recommend employees when progression opportunities arise. These opportunities can also take the form of reverse mentoring, where junior employees are paired with senior leader mentees in order to provide a safe channel to learn and share insights and experiences, while providing a fresh perspective on the firm’s business, strategy, and culture.

Wrap up

At the beginning of this blog, I said pay gaps are less about pay. We know companies worldwide don’t normally aim to pay people differently because of their protected category status. But equal pay is a legacy issue for many. Some may know that they have a pay equity challenge but don’t know the entire extent of it. Again, only by crunching the numbers and doing a proactive pay equity audit can you truly uncover key areas of risk. This should become a part of your strategy.

The ultimate aim of analyzing ethnicity pay gaps should be to make employers reflect on why discrepancies in pay exist within their organization and prompt them to raise awareness and understanding of these issues. This will lead to solutions. 

At CURO, we believe everyone should have equal access to work and opportunity to reach their full potential, regardless of identity, background, or circumstance.

On-Demand Webinar: Your Complete Guide to Tackling Race and Ethnicity Pay Gaps