Ethnicity Pay Gap: Causes and how to Close the Gap

The Ethnicity Pay Gap & Its Importance

The ethnicity pay gap, the difference in average earnings between different ethnic groups - is a critical issue that requires immediate attention in our globalised world. Similar to the gender pay gap, which reflects the difference in average earnings between men and women for the same work, this discrepancy has far-reaching consequences and highlights deep-seated systemic inequalities that hinder social cohesion and economic growth. It is not just a financial discrepancy – it is an indicator of the persistent racial and ethnic discrimination embedded in our society. Eliminating the migration pay gap is a moral imperative and a strategic necessity. By closing this gap, we are not only championing social justice, but also unlocking the full potential of our diverse global workforce. In the following sections, we will take a closer look at the causes of this inequality, analyse current initiatives and their limitations, and explore possible strategies to bridge this gap.

The Root Causes of the Ethnicity Pay Gap

To fully comprehend the ethnicity pay gap, it's crucial to investigate its multiple interconnected causes. These causes are rooted in a complex mesh of systemic, societal, and individual factors that contribute to this economic disparity.

At the systemic level, structural racism and discrimination play a significant role. These issues often result in occupational segregation, where ethnic minorities are disproportionately represented in lower-wage industries and largely absent in high-wage sectors. This segregation isn't accidental but is an outcome of entrenched biases and discriminatory practices in recruitment and promotion processes.

Socio-economic background is another influential factor. Quality education and professional opportunities, often easily accessible to privileged sections of society, significantly shape an individual's career trajectory and earning potential. For instance, a child from an ethnic minority background raised in an underprivileged area likely faces barriers in accessing quality education and networking opportunities. Such constraints limit their ability to compete on an equal footing in the job market, perpetuating the ethnicity pay gap.

Unconscious biases further compound these issues. They subtly infiltrate hiring processes and career advancements, inadvertently favouring certain groups over others. Such biases can reinforce a cycle of privilege, widen the pay gap, and perpetuate an unjust status quo.

Each of these causes is deeply interlinked, forming a cycle that continues to feed into the ethnicity pay gap. Recognizing these causes is the first step towards designing effective interventions to break this cycle and address this pervasive inequality. The next sections will scrutinise existing measures to tackle the pay gap and highlight the importance of both policy reforms and corporate responsibility in this fight for economic equity.

The Current Landscape: Policies & Corporate Practices

As society gains an increasing awareness of the ethnicity pay gap, various initiatives have been implemented on both the policy and corporate fronts to tackle this persistent inequality.

Policy has played an important role in these efforts. Many countries have enacted anti-discrimination laws that prohibit employers from differentiating pay on the basis of ethnicity. In addition, some countries have introduced mandatory reporting of pay differentials. These measures increase transparency, force companies to publicly account for their pay practices and prompt them to take the necessary remedial action. Large companies such as Deutsche Bank or Deloitte are pioneers in transparency and voluntarily reported their gender & migration pay gaps before it became mandatory in the wake of the German Pay Transparency Act, which came into force in January 2018.
Alongside this, companies around the world are making conscious efforts to close this gap. Many have established diversity and inclusion programmes that prioritise the hiring and promotion of people from different ethnic backgrounds. Others have conducted pay audits to identify and correct pay gaps in their companies.

Despite these positive developments, these efforts have not reduced the migration pay gap to a satisfactory degree. Existing laws often lack consistent enforcement and penalties for non-compliance are not always severe enough to deter discriminatory practices. On the corporate side, diversity and inclusion programmes, while laudable, are sometimes insufficient to address the deep-seated systemic problems that contribute to the pay gap. These initiatives are often tokenistic, aimed at improving the image of the company rather than bringing about substantive change.
Further, the effectiveness of these initiatives also depends heavily on society's attitude towards ethnic diversity. Without broader societal acceptance and understanding, even well-intentioned policies and practices cannot make significant progress in reducing the pay gap. Thus, although existing initiatives represent progress in the right direction, much remains to be done.

How You can Contribute as a Company

Companies therefore play an important role in efforts to close the migration pay gap and some have taken various initiatives to ensure equal pay. Here are some of these strategies:

Diversity and Inclusion Programs: Many companies have established diversity and inclusion (D&I) programs that aim to promote a culture of respect and equal opportunity. These initiatives often include targets for hiring and promoting individuals from various ethnic backgrounds. Companies may also conduct D&I training to help employees understand and mitigate unconscious biases. In addition, companies ultimately benefit from a diverse workforce, as you can read in our article "Unlocking Potential through Inclusion".

Wage Audits: Some companies perform regular wage audits to detect any disparities in pay between employees of different ethnicities. If any discrepancies are found, the company can make adjustments to ensure fair pay for all employees. These audits promote transparency and signal to employees that the company is committed to wage equality.

Transparent Pay Structures. To foster fairness and trust, some corporations have introduced transparent pay structures, where employees can see the salary range for each position in the company. This transparency discourages discriminatory pay practices and ensures that pay decisions are based on role requirements, experience, and performance rather than personal characteristics like ethnicity. As part of the Pay Transparency Act, German employees in companies with more than 200 employees can apply for individual information entitlement in this regard.

Installation of Employee Resource Groups (ERGs). ERGs are employee-led groups based on shared characteristics or experiences, such as ethnicity. They provide a space for employees from various ethnic backgrounds to support each other and voice their concerns, further promoting diversity and inclusion within the company.

Mentorship and Sponsorship Programs. Such programs pair less experienced employees with senior employees who can provide guidance, support, and advocacy, helping them navigate their career progression. Regardless of the Migration Pay Gap, such programmes should also exist in every company!

Corporate Responsibility: Businesses Leading Change

While policy reforms are an important part of the solution, companies in particular play an important role in closing the migration pay gap. Companies are the most important players in the labour market and as such their practices have a direct impact on the pay gap.

Closing the migration pay gap is not a matter for the despondent - it requires joint efforts by governments and businesses. It is time to enforce strong anti-discrimination laws, promote transparency in pay and create inclusive workplaces. Our collective action today can redefine our shared future. Let's take this opportunity to drive change and promote a world of equal opportunity and fair pay for all. Your corporate responsibility will thank you.

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