The role of the workplace in ethnic wage differentials

Using linked employer–employee data for Britain, we examine ethnic wage differentials among full‐time employees. We find substantial ethnic segregation across workplaces. However, this inter‐workplace segregation does not contribute to the aggregate wage penalty in Britain. Instead, most of the ethnic wage gap exists within the workplace, between observationally‐equivalent co‐workers. Lower pay satisfaction and higher levels of skill mismatch among ethnic minority workers are consistent with discrimination in wage‐setting on the part of employers. The presence of recognized trade unions and the use of job evaluation schemes within the workplace are associated with a smaller ethnic wage gap. These findings indicate that more attention should be placed on ensuring fairness in wage determination.