Human Capital

The Bigger Challenge in 2021 is for Employers to Close the Racial Wage Gap

Equality and racial justice are a part of the national conversation like never before, with the hope of real change ahead. One key area employers can use to demonstrate their sincerity and make a lasting difference is closing the racial wage gap.— By Belinda Jones

The events of the past year have opened up conversations around equality, equity, and work in ways that haven’t been seen before. While for some employers this is distinctly uncomfortable, others are looking for new ways to make progress and show their seriousness around righting past wrongs. One way to do this – and a way that will positively impact the lives of millions of minority workers – is for companies to actively work to eliminate the racial pay gap.

In the paragraphs ahead, the realities of the racial pay gap will be revisited in light of the impact 2020 had on the economy. Then, the actions that can be taken to ensure progress is made and justice done will be discussed.

What 2020 did to the Racial Pay Gap
2020 was a roller coaster of a year for everyone – and everyone’s paychecks. Even those who maintained steady employment throughout the year faced anxiety over their work situation as business models shifted, and almost everyone knew someone who had lost a job or could no longer go to work due to health concerns or caregiving responsibilities.

Minority communities were hit hardest. According to data from the Bureau of Labor Statistics and, while white unemployment peaked at 7.3% in 2020, unemployment for Asians rose to 8.7%, Hispanics went to 10.4%, and African Americans went up to 11.4%. Women suffered higher rates of unemployment overall than men, with women’s labor participation dropping to its lowest level in 33 years.

Further, LeanIn and Payscale note that pay gaps for gender and race are more pronounced in both entry level tiers and in that first jump to management from individual contributor roles, meaning that work at this level can have a dramatic impact on numbers and the employee experience.
Now, being unemployed at the time of a job change is already a disadvantage for all workers, usually working out to getting around 4% less. Be out of work for longer than a year, and it doubles to nearly 8% less. That’s a stinging disadvantage to bear when systemic racism is also in play…

In 2020, after years of progress, the racial wage gap widened. For American Indians and Alaska Natives, the jump was the biggest, falling to 75 cents on the white man’s dollar. Plus, factoring in the latest pandemic-induced employment shifts, black women in the U.S. are now paid 38% less than white men and 21% less than white women.

How Can Companies Work to Reverse The Trend?
It seems shocking that at a time when conversations around justice, equity, and fairness are happening so publicly and so broadly, pay trends could be moving in the wrong direction. Yet the numbers – even when highly massaged to be “controlled” for hours worked, education level, and geography – paint a very damning picture. Thus, if companies truly want to “walk the talk” on racial justice, an excellent starting point is to fix the money.

Now, companies may be reluctant to hit this in a head-on, public way, given that raising pay for some groups might be perceived as an admission that the firm has been discriminating. Unfortunately, the numbers wouldn’t look like they do if firms were truly, honestly, giving equal pay for equal work. To give one example, starting at the age of 16, black women are paid less than black men, white women, and white men, a life-long earnings gap that can add up to more than million dollars in lost wealth over her work lifetime. It’s a crazy, crazy number that shouldn’t be a statistic the likes of can fundraise on in today’s America.

Practical Steps to Make Change – And Make Change That Lasts
Knowing the numbers on average, what can a firm specifically do to close their own racial pay gaps and do so in a way that unseats the systemic bias that allows such gaps to exist?

A simple first step that can be taken right now is to make a conscious effort to eliminate the national tradition of low-ball offers made to those currently unemployed. Thanks to COVID-19, diverse communities lost more jobs, leaving a higher percentage of diverse candidates coming back to work with an employment gap on their resumes. Offering them the same salary that would be given to a presently employed worker is a difference that can be seen and felt in paychecks today and a benefit that can compound for years to come, since future raises are often a percentage of present salary.

Next, take a special look at the lower third of the organizational structure. It goes without saying … although the numbers indicate it needs to be repeated, loudly… that paying a living wage is essential. Further, LeanIn and Payscale note that pay gaps for gender and race are more pronounced in both entry level tiers and in that first jump to management from individual contributor roles, meaning that work at this level can have a dramatic impact on numbers and the employee experience.

Finally, firms need to run wage equity audits more often and make more frequent adjustments as disparities are noted. This may mean that adjustments get made “off cycle” from when raises are traditionally distributed, but what excuse is there (legally as well as morally) for allowing known pay disparities to continue? Leading tech firms like PayPal, to name one example, run equity audits throughout the year to ensure tweaks can be made promptly if wages fall out of line.

All in all, while 2020 brought conversations around equity and justice to the forefront, it also brought in economic conditions that allowed racial wage gaps to increase. Given the new commitment to reversing long-standing bias trends in this country, the issue of pay equity seems a good place for firms to take action to make a lasting difference where it counts – in people’s pockets, and by extension, in the wealth and well-being of diverse communities around the country.