Two Things About Ethnicity Pay Gaps that May Have Passed You By

Last week the ONS published a study  setting out recent trends in ethnicity pay gaps. Despite lots of caveats in the article, many papers duly reported the end of pay gaps by ethnicity. There are reasons to think, however, that we may not be there yet.
Thing 1
Look at the left hand panel in the Figure below. The Figure essentially reproduces the Figure in the ONS study¹ - which does indeed show that the raw ethnicity pay gap (ie unadjusted for any possible explanatory factors) had fallen to near zero by 2019. However there are many reasons not to look at the raw pay gap. This is largely because ethnic minorities in the UK are still not equally distributed in many dimensions, by geography and education for example. If these factors also determine pay, as region and education do, then we are missing something fundamental when looking at the raw gap. The top line in the left hand panel of the graph duly "nets out" some of these things, (age, gender, qualifications and geography), revealing the pay gap after these factors are taken into account. And it is quite a lot bigger than the raw gap (about 10 percentage points bigger). What it means is that even in 2019, individuals from ethnic minorities were paid worse - about 12% worse - than their white peers with the same age, gender and and region of residence. So not quite there yet.

Figure. Mean Hourly Ethnicity Pay Gap Relative to White: With & Without Controlling for Other Stuff & by Migrant Status Thing 2
Another important feature of the ethnicity pay gap often overlooked in the debate, is that it matters whether the individual was born in the UK or outside the UK. Around half of all non-white ethnic minorities in the UK were born abroad.² The second panel plots the same ethnicity pay gap net of controls as in the left hand panel (middle line) alongside the equivalent for individuals born in the UK and those born outside the UK. The pay gap is much much bigger for non-white ethnicity immigrants than it is for non-white ethnicity individuals born here. Indeed for the latter the pay gap is closer to zero and has been so for some time. This is an issue for any study that looks at average differences between groups. There are, of course, other important dimensions to this debate which we will return to in later blogs. But the message here is that often averages can obscure important features. In this case, just looking at ethnicity as a single group misses out on the interaction of immigration and pay.

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1 ^↩The Figure uses mean rather than the median hourly pay - but this makes very little difference to the story
2 ^↩Source: Annual Population Survey