Labour market differences between immigrant and UK-born employees: What is the role of employers?

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A growing body of academic literature suggests that employers’ hiring decisions and pay-setting policies widen labour market disparities. Although limited, international evidence shows that employers also contribute to disparities in labour market outcomes, particularly earnings, between immigrant and native-born employees. This evidence indicates that where immigrant and native-born employees work (i.e. for whom they work – the employer) drives these disparities more than individual employers’ pay-setting policies. We contribute new evidence to this literature by using de-identified data from the newly linked ASHE-Census 2011 dataset.

We found that immigrants, on average, earn less, work longer hours, and are more likely to have low-skilled or temporary jobs relative to comparable UK-born workers.

One quarter of the hourly pay gap between immigrant and UK-born employees results from where employees work. However, pay disparities exist even when comparisons are made within employers and among co-workers with similar characteristics. This suggests that employers’ hiring decisions and pay-setting policies both play a significant role in determining pay differences.

Employers also exert a notable influence over other labour market outcomes – in hours worked, the probability of employment in low-skilled occupations, and the probability of temporary employment. Although where employees work explains a part of these differences, persistent disparities remain within employers and when comparing co-workers with similar characteristics.

Why it matters

Using the ASHE-Census 2011 dataset, these findings provide novel evidence on how employers impact upon differences between immigrant and UK-born employees in various labour market outcomes. This adds to our understanding of labour market disparities where evidence is scarce.

Our findings indicate that employer-specific effects contribute to the labour market disadvantages of immigrants compared to UK-born employees. Consistent with evidence on ethnicity and gender disparities, differences in where immigrant and UK-born employees work and inequalities within employers play a significant role. This is particularly relevant for policymakers aiming to reduce workforce inequalities, given the different policy implications associated with the two channels.  

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