Why Black People Get Paid Less – And What We Can Do About It

Have you ever wondered how media companies work out how much to pay you?

It is an important issue for everyone, but has become a pressing issue for BAME (Black, Asian and Minority Ethnic) people right now due to the issue of ethnicity pay-gaps.

This week the think tank, the Resolution Foundation, published their findings on the UK ethnicity pay-gap and they make for bleak reading. Black male graduates are paid 17% less than their white counterparts on average. British BAME people (Black, Asian and Minority Ethnic) in general lose £3.2bn a year in pay gap differences compared to their white counterparts.

In July 2018 ITN revealed an ethnicity pay gap of 20.8%.

PUT SIMPLY THE CONVERSATION THAT NEEDS TO CHANGE

  

Well here is an example of a typical conversation I used to have as a BBC exec with Production Managers (PM) that may have inadvertently perpetuated ethnicity pay-gaps.

Me: I want to employ a new Assistant Producer I’ve just interviewed – I think they will be great for the new Panorama we have just been commissioned to make.  

PM: Great what is their name?

Me: Joan Smith, she has done some great work, she has never done a network program before but has worked for the BBC before and she will be great.

PM: OK let me look up the BBC payroll records and see what they were paid last time she had a contract at the BBC. And then that is what we will offer her.

Me: Great – let me know how it goes and when you chat to them.

A few days later Joan Smith (not a real name) would turn up and usually be paid the same, or just slightly more, than the last time she worked at the BBC.

If the person had not worked at the BBC previously the Production Manager would simply call them up and ask them “what was your salary for your last job?”

TWO BASIC ECONOMIC CONCEPTS

Economists have two terms for what is happening in these conversations: “Anchoring” and “Asymmetric Information”.

Let’s start with the concept of “anchoring”.

“Anchoring” was first described by two psychologists Daniel Kahneman and Amos Tversky in 1974 to explain the idea that an initial number (regardless of how large or small) can act as a reference point and influences subsequent judgments about something’s value.

Behavioral economists have recognized its particular importance in pay negotiations. Even though there may be subsequent adjustments on the initial number the first number will heavily influence the final outcome. If the initial number is high the final salary will be high, if the initial number is low the final salary will be low.

The concept of “asymmetric information” is also an important concept in economics and it is where one party has a lot more information than another party. Unsurprisingly economists have found that the people with more information have a massive advantage in any pay negotiations.

As the old saying goes; “knowledge is power”

WHY ANCHORING IS BAD FOR BAME PEOPLE

Anchoring your current pay negotiations on past pay is particularly bad for BAME people for a number of reasons. Statistically in the UK BAME people find it particularly hard to land their first job, this is true even for recent graduates who are more than twice as likely to be unemployed compared to their white counterparts

The high unemployment level often leads BAME people to take lower paid work. This initial low pay can then follow them throughout their careers as subsequent pay negotiations are then based on it.

WHY ASYMMETRIC INFORMATION IS BAD FOR PAY-GAPS

Asymmetric information gives the employer the upper hand. While they know exactly how much you earn the chances are you do not have a clue how much other people in the organization in your same position earn. This means the employer has a good idea how much you will settle for while you have next to no idea how high you can bargain for

According to David Burkus, a professor in management studies, this means that “during initial hiring or annual raise or promotion discussions, that information asymmetry gives an employer the advantage—and they can use that advantage to save a lot of money. Imagine how much better you could negotiate for a raise with all that information.”

WHAT IS THE SOLUTION?

The combination of anchoring and asymmetric information massively increases ethnicity pay gaps. So what can we do to try and solve the problem?

One possible solution is to change the law. Across the US from; New York City to San Francisco, it is now illegal to ask a prospective employee “What’s your current salary”.

The idea is to make sure that people who may have accepted a lower salary previously are not penalized throughout the rest of their careers.

For the policy to work in the media industry, where a few large organizations dominate the market, (see my previous post on monopsony) you would have to build Chinese Walls that would prohibit Production Managers and execs from just calling up pay roll records to see how much prospective employees earned previously.  

While this would combat the problem of anchoring, some people have gone one step further and think pay-gaps will only be eliminated once you get rid of the problem of asymmetric information.

David Burkus, who I quoted earlier, thinks there should be complete transparency of everyone’s salary in a company from the CEO to the office junior. This would force managers to be fair and transparent about how they decide people’s pay. It would also empower employees in salary negotiations

Other people have argued that companies may not need complete transparency but should publish the average salaries and range of certain positions so people can have discussions as to whether they should be paid more or less than the average. This would level the playing field in negotiations and would also act as a fairer anchor in pay negotiations.

WHAT CAN I DO AS AN INDIVIDUAL?

While we wait for that glorious day when new laws are implemented so employers can’t ask about your previous salary. Or enlightened HR departments decide to give up their asymmetric advantage in salary negotiations by creating more transparent salary information about their workforce, is there anything individuals can do now?

One suggestion is to simply ask a new employer what the average salary of the position is they are offering you to try and address the information asymmetry.

Another idea is to simply ask them why they need to know your current salary to offer you a new one and ask them to come up with a figure so they set the anchor.

However the most important thing is to recognize the importance of asymmetric information and the power of anchors. As a BBC exec I often didn’t fully appreciate the powerful position I was in and how simple conversations I had with Production Managers could have long lasting consequences  

Good luck and happy pay negotiations!

  

Additional note: 

I mentioned my time at the BBC at the beginning of the piece and so I thought I should briefly talk about its ethnicity pay gap. The BBC revealed a ethnicity pay-gap of -1.1%. The idea that the BBC actually has a negative ethnicity pay gap and pays BAME people more than white people is thought of as “strange”, to put it politely, by most people I have spoken to who work in the organization. Please read my blog post on why this figure is highly unreliable.