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The Economic Cost of Discrimination to the UK Economy: £127 billion a year

Discriminatory pay practices in the workplace are costing the UK Economy a staggering £127 billion in lost output each year.

  • The economic cost of workplace discrimination to the UK Economy is £127 billion
  • Of the  £127 billion, £123 billion is due to gender discrimination, £2.6 billion as a result of discrimination against ethnic minorities and £2 billion due to discrimination as a result of sexual orientation
  • The UK’s most diverse workplaces (across gender, ethnicity and sexual orientation) are 12 percentage points more likely to financially outperform their industry average than the least diverse firms.
  • Firms with the most developed diversity policies are 15 percentage points more likely to financially outperform those with less of a diversity focus.

Discriminatory pay practices in the workplace are costing the UK Economy a staggering £127 billion in lost output each year. A new in-depth report commissioned by INvolve, a membership organisation that champions holistic diversity and inclusion in the workplace, and Cebr, an economics consultancy, highlights the benefits of a diverse and inclusive workforce on both the businesses’ bottom line and the wider economy.

Diversity drives business performance

An analysis of over 500 workplaces uncovered a significant positive correlation between diversity and financial performance. The most diverse workplaces, in terms of gender, ethnicity and sexual orientation, are 12 percentage points more likely to outperform industry averages than the least diverse businesses. Furthermore, the research found that companies with a well-developed diversity policy outperformed national industry average by 15 percentage points. For example a company with a strong diversity policy would actively monitor and measure diversity, recruitment and promotion practices.

The economic cost of workplace discrimination

Despite the above positive correlation between good diversity policy and performance there is overwhelming evidence that discrimination against women, ethnic minorities and sexual orientation minorities is still widespread. The main economic problem from discriminatory practices in the workplace is an underutilisation of human resources. This manifests itself in many ways, including lower productivity and wages. By studying differences in pay, this report estimates the annual loss in economic output to UK economy that results from discrimination in the workplace. The report focuses on gender, ethnicity and sexual orientation wage gaps to quantify the corresponding costs to the economy of discrimination against these groups:

  • Gender: Women earn on average 20% less than men. This suggests gender-based workplace discrimination costs the UK economy up to £123 billion in lost output.
  • Ethnicity: After finding significant wage gaps in favour of white people for almost all ethnicities the report places the cost of discrimination against ethnic minorities at £2.6 billion. Even when controlling for education levels this pay gap is still prevalent with white people earning on average £67-£209 more per week when compared to similarly qualified individuals of a different ethnic background. However, those with a mixed ethnic background showed average earnings at £152 above white counterparts. 
  • Sexual Orientation: The pay gap around sexual orientation indicates a loss in output worth £2 billion each year.

Economic output lost through discrimination; Cebr

 

Unadjusted gap

Accounting for full time / part time work

Accounting for education (full time employees only)

Gender Pay Gap (male earnings – women’s earnings)

£249,416,000,000

 

£92,499,000,000

 

£122,733,000,000

 

Pay Gap by Ethnicity

£2,602,000,000

 

 

 

Pay Gap by Sexual Orientation

£1,956,000,000

 

 

Double Diversity Dividend

Overall, the report shows that there is a double-dividend to increasing workplace diversity and decreasing discriminatory pay practices. More diverse firms are more likely to be financially successful, while the reduction of workplace discrimination would not only help raise the income of many groups, but also benefit the economy as a whole substantially.

Suki Sandhu, Founder & CEO, INvolve, commented

Business is led by its bottom line. The report we’ve released today is a timely reminder of the crucial role a diverse workforce plays in business success. The economic rewards speak for themselves, and the social ones are equally invaluable. In the current climate, where the fight for equality and balanced representation is being fought on many fronts every day, we need businesses to stand up and work to drive change in our society and our workplaces; to ensure that everyone, no matter their gender, heritage or sexuality, is given an equal opportunity to thrive and reach their full potential.

This is why we have launched INvolve – a motherbrand sitting above our OUTstanding, EMpower and HERoes initiatives with a holistic approach to diversity and inclusion in business, helping to create organisations where anyone can, and does, succeed.’

Christian Jaccarini, Economist at the Centre for Economics and Business Research, commented 

Firms seeking a competitive advantage ought to consider both how they can achieve a more diverse workforce and what pro-diversity policies they can put in place, as our research shows that the most diverse firms and the most pro-diversity firms are more likely to be top performers in their industries.

Similarly, although the UK is more diverse than ever, discrimination is still costing the economy enormously. In fact, our upper-bound estimate finds that UK GDP would be around 7% higher if workplace discrimination based on gender, sexual orientation and ethnicity was eliminated. At the economy’s current rate, that growth would take just under four years to achieve.’