Abstract
Using matched employer-employee data for Britain, we examine ethnic wage differentials among full-time employees. We find substantial ethnic segregation across workplaces: around three-fifths of workplaces in Britain employ no ethnic minority workers. However, this workplace segregation does not contribute to the aggregate wage gap between ethnic minorities and white employees. Instead, most of the ethnic wage gap exists between observationally equivalent co-workers. Lower pay satisfaction and higher levels of skill mismatch among ethnic minority workers are consistent with discrimination in wage-setting on the part of employers. The use of job evaluation schemes within the workplace is shown to be associated with a smaller ethnic wage gap.
Highlights
The workforce in Britain has become increasingly diverse in recent decades
The degree of segregation of workplaces is shown by the fact that the distribution of white employees is shifted to the left of the graph, whilst the distribution of ethnic minority employees is shifted substantially to the right in comparison
Non-white workers fearing prejudicial dismissal may be willing to trade off lower wages for greater job security (Bond and Lehmann, 2018). We investigate this possibility of equalizing differences by looking at the relative pay satisfaction of white and non-white employees
Summary
The workforce in Britain has become increasingly diverse in recent decades. Whereas 6% of employees aged 16 and over were non-white in 2001, today it is 12% (Office for National Statistics, 2021). The growth in the percentage of employees from minority ethnic groups is associated with new waves of in-migration from around the world, together with growth in the population who migrated to Britain one or two generations ago. Unemployment and economic inactivity are more prevalent among ethnic minorities of working age than they are for white individuals, and those in employment experience substantial wage gaps, even when one conditions on differences in human capital and other earnings-enhancing traits (Blackaby et al 2002; Dustmann and Theodoropoulos, 2010; Longhi and Brynin, 2017; Evans, 2020; Amadxarif et al, 2020; Manning and Rose, 2021) Such ethnic wage differentials are the product of factors on both the supply and demand sides of the labour market (Dustmann and Fabri, 2003; Hudson et al, 2013; Zwysen and Longhi, 2018). This is a serious omission since evidence for the United States suggests the earnings differential between black workers and white workers “is primarily a within-firm phenomenon” (Carrington and Troske, 1998: 231), as opposed to a betweenfirm phenomenon which could be driven by the segregation of workers from different ethnicities into firms in different parts of the firm-level earnings distribution
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