The ethnic wage gap and employment differentials in the 1990s: Evidence for Britain

Abstract

It is twenty years since Britain passed legislation to combat racial discrimination. Despite this, Britain's nonwhite ethnic minorities still appear to face substantial amounts of discrimination in the labour market. Unemployment is particularly severe.

Introduction

Britain's ethnic minorities face two major difficulties in the labour market. Problem one is higher unemployment and problem two is that when employment is found earnings tend to be lower compared with similar white individuals. Using information pooled over economic cycles in the 1970s and 1980s, (Blackaby et al., 1994) found that lack of employment opportunities is the more severe problem. The ethnic wage gap increased from 7.3 in the 1970s to 12.1 percent in the 1980s, whilst the unemployment differential increased from 2.6 percentage points to 10.9 percentage points. Using decomposition analysis, it was found that differences in rewards to characteristics rather than differences in the level of characteristics were more important in explaining the ethnic wage gap and the increase in this differential over time. Similarly, coefficient differences were dominant in explaining ethnic unemployment disadvantage, with characteristic effects now tending to play a larger role.

The paper updates this earlier work by looking at the relative position of Britain's nonwhite ethnic minorities in the 1990s. Secondly, it examines three major ethnic groups separately to show that employment and wage discrimination differ across separate categories.

Britain's ethnic minorities are highly diverse, separated by cultural differences as represented by kinship, religion, language, nationality etc. The fact that individuals can easily classify themselves into separate ethnic groups, as happens in a number of government surveys, suggests that individuals do perceive differences in society which take account of various characteristics which include physical ones such as the colour of skin. Yet, because of the relatively small size of the ethnic minority population (5.7 percent in 1995), most formal econometric investigations have failed to take account of the heterogeneity within the ethnic minority population.¹

Indians, accounting for 28 percent of ethnic minorities, Black Caribbean 17 percent, and Pakistanis 16 percent, will be studied here. The introduction of an earnings question into the Labour Force Survey from the Winter of 1992 enables this more detailed research to be undertaken, because it is a larger survey than that used by BCLM (Blackaby et al., 1994). Although the focus is Britain, the problem, particularly unemployment, is a major issue for the European Community.² This is in sharp contrast to recent research in the USA where Neal and Johnson (1996)find no evidence for a black/white wage differential after controlling for characteristics. Unemployment differentials also tend to be lower (Stratton, 1993).