Ethnicity pay gap: Why the UK needs mandatory reporting

Susan Milner is Professor of European Politics and Society in the Department of Politics, Languages and International Studies at the University of Bath.

In the summer of 2020, the Black Lives Matter movement intensified calls for racial equality across all aspects of society. Though efforts to eradicate police brutality were chief concerns following the murder of George Floyd by police in the US, other structural racial issues were highlighted as urgent problems too.

One of those demands included encouraging companies to do more to support black and ethnic minority employees. As the movement gained traction, a petition to introduce mandatory ethnicity pay gap reporting was delivered to the UK government last July.

At that stage, a number of business and equality campaign organisations had already called for such a measure to be enacted, and the government was widely expected to respond positively to these demands. But a year after the protests, campaigners are still waiting for action.

An agenda for change had already been set out in 2018 by the independent McGregor-Smith review on race in the workplace. Among a number of revelations, the report showed a lack of access to training and promotion opportunities for black and ethnic minority employees. It also showed low numbers of top-paid black and minority ethnic employees and high proportions of black and minority ethnic people in poorly paid jobs.

Based on these alarming findings, the report argued that measuring data was a necessary first step. It concluded:

Employers must publish their aspirational targets, be transparent about their progress and be accountable for delivering them. The government must also legislate to make larger businesses publish their ethnicity data by salary band to show progress.

Following the review, the government conducted a consultation in 2018-19 – the results of which have yet to be published – and responded by announcing it was “exploring possibilities for employer-level ethnicity pay gap reporting.” Its initial exercise found “genuine difficulties” in producing robust data, caused not least by under-reporting of employees’ ethnic origins. Yet despite these difficulties, 11% of companies managed to produce and publish data by 2020.

The pitfalls of voluntary reporting

Since then, the government has largely demoted ethnicity pay reporting from its agenda. Without a more comprehensive picture of the issue at hand, grasping the extent of any widespread disparities is proving difficult. Even so, previous endeavours into similar areas can tell us a lot about the merits of mandatory reporting.

The events leading up to the introduction of mandatory gender pay gap reporting in 2016 are perfect examples. Prior to the new regulations, a voluntary initiative had led to only six companies publishing their pay gap data. Yet a consultation showed that employers were generally supportive of mandatory reporting because it meant that all organisations would have to use consistent methods and be able to benchmark against each other.

At the time, my colleagues at the GW4 Pay Equality Research Consortium conducted a study of employers’ readiness for new regulations and found that, while few companies felt prepared, they understood the business case for diversity and acknowledged that change would only happen on the basis of a level regulatory playing field.

The current government doesn’t seem to have learned from this exercise. Instead, it argues in favour of a voluntary approach, justifying its stance by citing its widely criticised Commission on Race and Ethnic Disparities report, which referred to the “unreliability of sample sizes”.

The report gives a hypothetical example of a company with 250 employees, the threshold suggested in the 2018 consultation. This was also the threshold used for gender pay gap reporting. It states that while such a company would have an average of 125 male and 125 female employees, it would have only 25 ethnic minority employees to compare with 225 white employees: “Many employers around the country simply do not have enough ethnic minorities (sic) for the recording sample to be valid”, it suggests. But is it true?

The distraction of statistical symmetry

The idea that there are too few ethnic minority employees to provide useful data is misleading at best. Although aggregate numbers of employed women are only slightly lower than those of men in the economy, they are distributed very differently across sectors and occupations.

As the gender pay gap reports published on the official government website show, proportions of men and women vary markedly across organisations, and those with relatively low levels of men or women are still able to produce mean and median gender pay gaps. Similar workplace segregation is evident for ethnic minorities. To insist on statistical symmetry is to miss the point of highlighting labour market disadvantage.

Pay gap reporting in its current form is not meant to be a robust statistical tool: it provides a snapshot of workforce composition and pay at a given point. The government has argued (based on the race and ethnic disparities report) that reporting can be misleading because pay gaps can result from factors such as age. It cites the example of the NHS, where it says the ethnicity pay gap is largely due to age differences, as employees from a black and ethnic minority background are likely to be younger.

But that’s precisely the point of reporting – it obliges employers to examine their data and to work out why disparities might exist. It doesn’t assume that discrimination takes place, but rather provides information so that employers can make informed decisions to improve their recruitment, promotion, and other human resources management policies.

Arguably, gender pay gap reporting is also unreliable, in that there are many more women working part-time than men, and we know that part-time working is generally lower paid than full-time. In other words, it is a useful start, but it needs to be refined in the future.

Ethnicity pay gap reporting will provide a similarly imperfect picture, but still a much-needed one that organisations can learn from in order to improve their employment practices. At a time when there’s evidence of worsening employment conditions for people from black and ethnic minority backgrounds due to the pandemic, government action is more necessary than ever.

This blog was originally posted via The Conversation on 24 May 2021.