Significant income inequality exists between ethnic groups in the UK.
People from Bangladeshi and Pakistani ethnic groups are around twice as likely to be in the bottom fifth of incomes than average, and have the lowest median household incomes, closely followed by people from a Black ethnic group.
This Insight examines unemployment rates and wages as two of the causes of income inequality.
Income here refers to disposable income, which includes wages and other income like benefits, income from investments and private pensions. It excludes direct taxes, National Insurance and local taxes, like council tax.
This income data is adjusted for household size and composition (equivalised) to provide better comparisons of living standards. A large household is likely to need a higher level of income in order to enjoy the same standard of living as a smaller household.
The ethnic groups we look at are based on the Office for National Statistics (ONS) and Department for Work and Pensions (DWP)’s official publications. These include: White, Mixed/Multiple ethnic groups, Indian, Pakistani, Bangladeshi, Chinese, Any other Asian background, Black/African/Caribbean/Black British, and Other ethnic groups.
Which ethnic groups have the highest and lowest household incomes?
By looking at median weekly household incomes, before housing costs are subtracted, we can see how people in different ethnic groups compare.
The chart below shows median weekly household income in the three-year period 2016/17 to 2018/19. During this time, people from Pakistani and Bangladeshi ethnic groups had the lowest median incomes, while people from White and Indian ethnic groups had the highest.
Income data is taken from the DWP’s Households Below Average Income survey, which classifies the ethnic group of households by the ethnic group of the one ‘household reference person,’ which means information about households of multiple ethnicities is lost.
Analysis by household, along with small sample sizes means other intersectional data, such as gender and disability, are also lost.
There is also disparity between the proportion of people in different ethnic groups with high and low incomes.
The charts below show the percentage of people in each ethnic group living in households that were in the bottom and top fifth of all incomes in the years 2016/17 to 2018/19.
Nearly half (47%) of people from the Pakistani ethnic group lived in households that were in the bottom fifth of incomes, compared to 18% of people from a White ethnic group. 37% of people from the Bangladeshi ethnic group and 31% of people from a Black ethnic group were in the bottom fifth.
At the other end of the income distribution, only 3% of people from the Bangladeshi ethnic group and 4% of those from the Pakistani ethnic group lived in households that were in the top fifth of incomes. This is compared to 27% of people from a Chinese ethnic group, 25% of people from an Indian ethnic group, and 21% of people from a White ethnic group.
Why is there income inequality between ethnic groups?
The race equality think tank, the Runnymede Trust, found in its April 2020 ‘The Colour of Money’ report that Black and ethnic minority groups are more likely to have low incomes due to:
Lower wages, higher unemployment rates, higher rates of part-time working, higher housing costs in England’s large cities (especially London), slightly larger household size, and the relatively low levels of benefits paid, particularly following the application of the ‘benefit cap’.
Data from the ONS shows that employment rates follow a similar pattern to median incomes: people from Bangladeshi (54%) and Pakistani (58%) ethnic groups had the lowest rates, while people from Indian (77%) and White (78%) ethnic groups had the highest. These employment gaps begin to explain income inequality between ethnic groups.
Also notable is the gap in economic inactivity rates (people not working and not looking for work).
Economic inactivity rates of some ethnic groups, like Bangladeshi (40%), Pakistani (38%) and Chinese (32%) ethnic groups, are higher than average (20%). This is largely because of high rates of economic inactivity among women from these ethnic groups.
In January-March 2020, around 57% of women from a Bangladeshi and a Pakistani ethnic group were economically inactive, compared to 26% from Black and Indian ethnic groups, and 22% from a White ethnic group.
Discrimination in recruitment
As well as differences in economic activity levels, people from some ethnic groups might find it harder to find work due to discrimination in recruitment.
In 2019 the Centre for Social Investigation at the University of Oxford, and the GEMM (Growth, Equal opportunities, Migration and Markets) Project published the findings of a field experiment where they applied to 3,200 jobs, randomly changing the minority background of the jobseeker on the application but keeping skills, work experience and qualifications the same.
They found evidence of discrimination across all occupations. Applicants from ethnic minorities needed to send 60% more applications in order to receive as many call-backs as the majority group. These results are similar to a field study dating back to 1969.
Pay gaps and pay penalties
The chart below shows the median gross hourly pay of employees in each ethnic group in Great Britain in 2018.
In 2018, people from Bangladeshi (£9.60), Pakistani (£10.00), Black £10.92), and Other (£10.92) ethnic groups had the lowest average pay, and people from Chinese (£15.75) and Indian (£13.47) ethnic groups had the highest.
The Resolution Foundation’s 2018 report Opportunities Knocked? Exploring pay penalties among the UK’s ethnic minorities, found that though personal factors like qualifications, where individuals are born, and where they live make a difference to pay gaps between ethnic groups, a gap remains even when these factors are taken into account. The remaining gap is called a pay penalty.
The think-tank found that penalties persist among graduates and non-graduates, even when degree class is taken into account. Pay penalties are largest for Black male graduates and for Pakistani/Bangladeshi non-graduate men. Pay penalties for Black women compared to White women are also substantial.
Note: The data above does not reflect the impact of the coronavirus. Coronavirus: Impact on the labour market provides up-to-date analysis on how the pandemic is impacting different ethnic groups.
Unemployment by ethnic background, June 2020, House of Commons Library
The Colour of Money How racial inequalities obstruct a fair and resilient economy, April 2020, Runnymede Trust
Covid-19’s Impact on BME Communities, August 2020, Runnymede Trust
Income inequality in the UK, May 2019, House of Commons Library
Coronavirus: Which workers are economically impacted?, House of Commons Library
Coronavirus: Which key workers are most at risk?, House of Commons Library
About the author: Brigid Francis-Devine specialises in economic policy and statistics at the House of Commons Library.