As part of its proposed equal pay legislation, the Labour Party has announced that it will introduce compulsory ethnic pay monitoring in large organisations if it forms the next government. It believes that there is a great deal of racial discrimination in Britain: many Conservatives agree. But hold on a minute.
Pay gaps exist between any defined groups. Economists focus on the gap between the average hourly pay of men and women, and to a lesser extent on gaps between different ethnicities. But they have also measured pay gaps between people with or without disabilities, between people of different sexual orientation, between religious affiliations, between tall people and short people, between people rated good-looking and those plainer, and many more. There is probably a team beavering away somewhere to estimate gaps between people with blue eyes and green eyes, or between bald people and those with ginger hair.
These differences are often unthinkingly assumed to be down to discrimination, that cardinal sin in our godless society. But much of any pay gap between groups can be statistically explained by age, educational qualifications, occupation, domestic arrangements and a host of economically-relevant characteristics and personal choices of individuals. The residual left after accounting for these factors could be down to discrimination, but also to unmeasurable personal characteristics such as attitudes to work.
These subtleties are lost on politicians. We already require organisations employing more than 250 people to publish annual assessments of their gender pay gaps, to comment on these figures, and outline policies they are going to adopt in order to reduce any gaps.
This is a costly exercise, now involving more than 14,000 organisations. It has achieved very little: the aggregate gender pay gap across the economy has continued to decline slowly as it has done for many years, but this has nothing really to do with pay monitoring, which tells us very little about any discrimination as the information supplied does not enable serious analysis.
Many firms, because of the sector they are in or as a result of historical circumstances, show very low pay gaps, or even gaps in favour of women. But this may have nothing to do with exemplary behaviour, just as a big pay gap in favour of men does not indicate a ‘bad’ employer. There are big differences in pay gaps between government departments, for instance, even though all have the same civil service recruitment and HR policies. Publication of a large gap can, however, stigmatise a business – and this leads to attempts to alter the gap through artificial means such as biased recruitment procedures (as in the recent RAF case) or by outsourcing low-paid jobs done predominantly by females.
We can expect ethnic monitoring to be a more difficult and more complicated business. There are so many different ethnicities in London, for example, that businesses will have to aggregate in categories such as ‘black’ ‘Asian’ or ‘BAME’ which conceal important differences within these categories. People of Indian or Chinese heritage earn more than whites, while Pakistani heritage employees earn much less.
Use of broad categories are often resented by those characterised in this way. They are almost certainly going to create ill-feeling within groups, and clumsy attempts by employers to address apparent inequalities could well make matters worse. It was for these reasons that the Commission on Race and Ethnic Disparities rejected compulsory ethnic monitoring. They were right to do so.
