Vast gaps in living standards between ethnic groups persist — and recent progress could yet be undone

Published on Shared Growth

We talk a lot about certain types of income inequality—the recent outcry over unequal pay at the BBC springs to mind—but the specifics of ethnic economic inequalities rarely get enough air time. Though only scratching the surface of such a complex topic, my recent Resolution Foundation briefing on the gaps in household incomes for different ethnicities sought to explore how different groups are faring and how that’s changed over time. The results, while encouraging in places, were striking in their disparity.

The headline figures showed us that large living standards gaps between different ethnicities persist in Britain. Typical Bangladeshi household incomes were £8,900 a year lower than the White British median; Pakistani households £8,700 less and typical Black African households £5,600 less.

These gaps become even larger when housing costs are taken into account. Whereas over half of White British families own their home, only one in four Bangladeshi, Black and Other White (primarily European) families do. As a result, the disposable income gap between White British households and Bangladeshi households increases to £9,800 (44 per cent) when housing costs are considered.

But some progress has been made over the long-term, with the gap between ethnic groups narrowing in places. Bangladeshi households experienced the fastest income growth of all between 2001-03 and 2014-16—38 per cent in real terms, nearly three times the 13 per cent for the White British group. Pakistani households have also seen catch-up growth of 28 per cent over the same period.

Of course, employment gaps are a big factor in explaining household income differences, as well as in explaining how these have changed. Pakistani and Bangladeshi female employment is very low relative to White female employment (37 and 35 per cent compared to 72 per cent), but Pakistani and Bangladeshi women have seen their employment rate soar by 10 and 18 percentage points respectively between 2001-03 and 2015-17, partially closing the gap. Employment rates for Pakistani, Bangladeshi and Black men have also increased substantially, with growth of 10, 17 and 6 percentage points respectively since 2001-03, while the rate among white men has been flat.

In addition to employment growth, changes in earnings are feeding through into strong income growth for Pakistani and Bangladeshi households. For male employees of other ethnicities as a whole, typical weekly pay grew between 2001-03 and 2015-17 by only 1 per cent after accounting for inflation—a truly terrible performance. For male Pakistani and Bangladeshi employees however typical weekly pay, while still considerably below the overall median, rose by 28 per cent over the same period.

Alongside the labour market and housing, family make-up has a sizeable impact on the household finances of the different groups. White British and Black Caribbean households are typically older, reflected in home ownership rates and incomes, and—relatedly—they tend to contain fewer children. These demographic factors are important. The average number of children in Bangladeshi and Pakistani households (including those with no children at all) has fallen from 2.1 in the mid-90s to 1.3 two decades later—making incomes stretch further and no doubt helping boost female employment—compared to a small fall from 0.5 to 0.4 children per White British household.

Looking to the future, there is still a long way to go to reach anything like “full employment” for many groups. For instance, despite strong progress, the unemployment rate for Black, Bangladeshi and Pakistani men remains higher today than it was for White men even in the depths of the recession. The gaps in female employment also remain shockingly high. There remains a lot to do.

While the report does not explore directly the impact of the £14 billion of working-age welfare cuts currently being rolled out, it should also be a concern that these could begin to slow—or even reverse—income growth for groups that are typically lower income, young and with children.

There is a lot more research to be done, not least on the role of educational differences. But by looking at the causes of living standards inequalities, and what has helped change them—be that employment, wages, housing or taxes and benefits—we can try to ensure that in the UK a person’s ethnicity is no longer a good predictor of their income.

This blog originally appeared on Prospect magazine’s website