Madness behind the method in racial pay gap stats

Yesterday the front pages were filled with the news that the Prime Minister was going force all companies with more than 250 employees to disclose how many of each census ethnicity they have, and what different ethnicities get paid at the median.

This builds on the gender pay gap stats that Kate Andrews at the Institute of Economic Affairs has so roundly rebutted before, but companies nonetheless have to report. A totally useless set of statistics used to bash businesses and one which does not solve the issues it purports to.

Leaving aside the fact that there is nothing to force employees to disclose their race to their employer, or that there is something weirdly sinister the government demand companies do so, I’m convinced this crude measure will add yet another unnecessary burden to business and do nothing but sow division without reason.

As Tim Worstall, a Senior Fellow here at the Adam Smith Institute, said in a letter to the Times today: these figures are “misleading because the age structure of the population differs by formally defined race. From the 2011 census, the whole population median age was 39, that of the white population 41, Asian, black and other, 30, 30 and 29 respectively, and mixed 18. Pay rises with age, as promotions to better-paid positions are earned through experience.”

To put it bluntly, in the United Kingdom we’ve seen a large change demographic change in the past 50 to 60 years. In the UK, you’re like to earn the most between the ages of 40 to 54. If the white population’s median age is at that point and at peak earning potential at present, while other groups are younger and so behind in peak income, then any figure that does not control for this but is used to highlight a supposed ‘gap’ will be misleading at best, or otherwise downright dishonest.

But all this is bizarrely arbitrary anyway. Are we going to be so crude as to use ‘White’ as a broad brush signifier? Or will we split it into White British, White Irish and ‘Other White’ as we do at the census? If that’s the case, will it show up any racism or prejudices that exist towards various ethnic groups from the continent? Which one do British people of Irish origin choose?

Do we really expect media to split out all their headlines to explain the minutiae of British Indians pay being higher than the median pay for white Britons or lower than those from an East Asian background? Or will it be lumped together as ‘BAME’ and ‘White’?

I think we all know the answer to that: it’s the latter. That’s not journalists fault per se, columns are only a certain number of words long and headlines have to catch your attention. But it will be cheap and it will be nasty. And ultimately crude comparisons will not bring down barriers, tackle ongoing injustices in our society, or even free up time for HR departments to tackle actual issues of explicit or tacit discrimination in their companies.

Let’s take a dive into this proposal:

These figures won’t reflect reality

How the figures are presented matters. Usually when this kind of survey analysis is done, it gets split up into regions too. We’ll see some very odd results, not least because ethnicity gap statistics, as proposed, will not control for country of birth or fluency of language.

Even on a micro level, a firm may have a large manufacturing base in a part of the country with low diversity, but a small office in diverse London with higher than average wages for that company. Their pay gap will say nothing of whether there is discrimination within their London office, between the offices, or if there is a racial gap between their company and any others in either region.

But let’s say they don’t and said firm only has a base in one region. Let’s say for the sake of argument that region is Lincolnshire.

Lincolnshire has 92.9% born in the UK, EU 27 citizens make up 4.7% of the population with 3% being from the EU accession states of the past two decades. Just 2.4% of the population come from a BAME background. The BAME group are more educated and qualified than the average citizen of the area, are more likely than those from a white immigrant background to be full-time employed and more likely to be first language English.

It’s likely that the racial pay gap in the region will be low, and lower than a city like London, but would we really say that Lincolnshire is a better place to be someone from an ethnic minority than our capital city? It might be, but reality as shown by the real experiment of where people choose to live, says otherwise.

In fact, that will play out across the country. EU migrants have a higher tendency to be in low skill employment. Combined with the average age profile of UK migrants in recent years as being very young, there is a skew if we lump together ‘white’ workers of all backgrounds.

Skill level of citizen groups in work (UK, EU, non-EU)

There are natural barriers to progression and regulatory barriers

Where you get people who don’t speak the language of the majority, they don’t tend to perform as well in labour markets. One study suggested that fluency in English in the UK increases employment probabilities by about 22% and proficiency in English is associated with 18-20% higher earnings.

Occupational licensing is perhaps one of the biggest barriers that people from all backgrounds face. As far back as 2013 the number of jobs in the UK ‘requiring’ a degree overtook those without. It hasn’t changed since. And even those without this requirement specify licenses from governmental or non-governmental agencies.

Take a security guard for example. Most contracting jobs and most agency work requires individuals to have undertaken a Security Industry Authority licence from the Home Office. This is required for any work that takes place outdoors, and is often demanded by unions for any work taking place in-house to protect their members’ interests. Oddly enough the £220 licence and up to £400 training cost acts as a barrier to entry, especially for those unemployed or without ready savings. There’s little to suggest that on the job training or agency training couldn’t get people up to speed with security work, and that the spend on licence is really impactful on what is being guarded.

Take another. If you take an entry-level job at an insurer in the city, say doing secretarial or copy work, you may find later down the line that you’ll understand the business pretty well. You might want to move over into doing base level and then more complex but now understood underwriting or account management. These companies often require internal testing (which some charge employees for) and many require a qualification from the Chartered Insurance Institute. Without it many will watch young graduates go past them, and this has, for quite some time meant those from a white and middle class background. But will that last?

What matters most is integration of second generation and beyond

This I think is key. In the UK we’ve prided ourselves on bringing down institutional and legal barriers over woke measures and positive discrimination. Where ethnic groups are found in productive cities or are personally mobile to move for work, their access to higher salaries and the world of employment more generally is close to the average worker, and often higher.

Within the UK, it is again the return of class and IQ that has the biggest impact on avoidance of unemployment. When in employment, salariat requires being geographically mobile and there are cultural norms that discriminate. Where they are not mobile, there is an increase of their chances of being unemployed and having a lower salary.

They also, importantly, outperform their first-generation parents. This matters enormously. While in 1979 only 0.3% of the working age population was composed of British born ethnic minority individuals, this rose to 2.9% by 2009. The test for discrimination and success of integration within the educational system will be if these people perform worse than their white peers.

Knowing that university is used as a signifier for employers, is correlated to higher earnings, and that ethnic minority students now outperform their white British peers, we should expect them to outperform earnings-wise in future years.

Prejudice has a price

As legal and non-legal barriers to getting a full education and qualifications have fallen we’ve seen more people from minority backgrounds applying for opportunities. As legal penalties have come in to protect applicants from minority backgrounds from being discriminated against in employment processes, we’ve seen an increase in labour market participation and pay.

Quite frankly, if you’re a company that chooses to discriminate on the colour of skin or cultural background of an applicant, you are costing yourself talent. In an open market companies compete on profit. If they’re refusing talent based on an arbitrary factor, they will be making themselves uncompetitive. Those that do so will harm their productivity and will fall behind those without such inclinations. There’s some evidence to suggest this is already happening.

It is talent that matters though, which education and qualifications can help or hinder to signal, and which language barriers hinder being used to full potential. When the IZA investigated diverse workforces they found no correlation between diversity of ethnicity and firm performance, but they did for educational diversity.

Crude measures lead to crude outcomes

You might have noticed in this article, but this policy announcement raises more questions that it can possibly seek to answer. And each one is complex and, as the lingo goes, intersectional.

Crude race stats mask class differences between North and South and both of these mask gender differences. Ultimately, we also have to ask why we stop at race or gender. We know that height and mature facial features are highly correlated to earnings, blondes earn more tips than brunettes, why not force companies to measure those? We know there’s a link between lifelong earnings and obesity, why not track whether those who are fat are being held back?

Or rather, let’s not force companies to do any of these things. If a company wants to, and sees the chance to develop a competitive edge by doing so, then let them. Maybe though, all the intersections actually ends up boiling down to individuals.

And maybe, just maybe, it is companies that are based placed to know their own flaws and how to tackle any prejudices which hit their bottom line, better than any government ever could.

Ethnic pay gap reporting will be a misleading disaster

The Prime Minister has just announced that all companies and employers will be required to report the ethnic pay gap in their workforces. This is going to be a horribly misleading disaster - worse than the reporting on the gender pay gap has been.

All large employers will be forced to publish their "ethnicity pay gap" to help create a "fairer and more diverse workforce" under Government plans, the Prime Minister has announced.

Theresa May has launched a consultation on a new legal requirement for both public and private sector employers to publish the difference in pay between white and ethnic minority workers.

Quite apart from anything else the age profiles of the different ethnic groups are quite different:

This data uses the ‘median’ for working out the average age for each ethnic group. The median is the middle point of a range of numbers that are arranged in order of size from lowest to highest.

This data shows that:

at the time of the 2011 Census, the median age of the population of England and Wales was 39 years

the White ethnic group had the highest median age (at 41 years), and the Mixed group had the lowest (at 18 years)

the Asian, Black and Other ethnic groups had similar median ages at 30, 30, and 29 years respectively

As we all should know pay generally rises during a working life time. Older people get higher wages that is. Then we should add that confounding factor we found in the gender pay gap numbers - it tends to be the older people in the top and very well paid jobs. As some portion drop out of the workforce, as others dial back efforts to be part of the rat race, that average pay of women drops. Not because any one woman is being paid differently to any one man, but because of that difference in career progression - presumably freely chosen.

We found that at least one editor of a national newspaper wasn’t even willing to consider this explanation, let alone give it credence.

With the ethnic pay gap it will all be even more misleading. We’ve that same point, older people tend to be paid more, are further up the career ladder not through discrimination but experience. And yet the numbers will be presented raw, without correction fort this obvious point.

A population on average a decade younger than another will be earning lower wages. Ought to be earning lower wages. And yet that they are earning lower wages will become accepted evidence of gross discrimination.

The Prime Minster has just made a serious error here. She’s insisting upon the publication of figures that will only ever be used as a stick for her back. When all they actually will show is that mass immigration is a relatively recent phenomenon, which is why the ethnic age profiles are so different.

We’re reminded of Sir John Cowperthwaite. and the GDP figures in Hong Kong. Sometimes collecting the statistics is a bad idea because some damn fool will only do something with them.

We hate the smell of special interests in the morning

The agonising over the place of proper journalism in this digital age is, to us, the trashing of a superceded technology against that dying of the light. There’s nothing uncommon about this action of course. The question is whether we give in as with the man with the red flag in front of the motor car or not. Or more, with the demand that the people who make steering wheels must compensate those who make buggy whips. Both are means of directing transport, one is the new, the other the old, technology. And that is the demand, that the digital companies should pay for the old journalism ones.

This is a demand that should be rejected:

The head of a Government inquiry into the funding of high-quality journalism has travelled to the United States to gather evidence from tech giants and major newspapers.

Dame Frances Cairncross, an economist and former journalist, is this week on a fact-finding mission to both coasts as she prepares a report on financial pressures faced by publishers and newsrooms as a result of the online revolution.

An obvious point to be made. If the public desires or demands high quality journalism then some method will be found of getting the public to pay for high quality journalism. If the desire to pay doesn’t exist - in any form, through advertising, time, donations, subscriptions and the rest - then there isn’t that demand for that product, is there?

In near every other area of life we do just shrug and accept that some purveyors of whatever go out of business as new methods of sating desires arrive. The political problem we’ve got with this “high quality” journalism is that those who currently provide it, well, they currently dominate that public agenda precisely because they are the current suppliers. And boy aren’t they worried about that end to a comfortable life.

We should - must - reject these demands for subsidy. The basic contention is that the value received by the reading public from this high quality journalism is less than the cost of producing it. That’s why a new source of revenue must be found. That is, the entire process is value subtracting, it makes us poorer. So, obviously enough, we should stop doing it.

If it does add value then people will pay for it. So there’s no problem, is there?

We would point out that several of us produce incomes by doing this freelance journalism stuff. There’s no shortage of outlets, of places to say something. It costs spit to set up your own these days too. Thus we cannot say that there’s a shortage of supply of the thing being complained about. Rather, a threat to the current structures of doing that supply is what is really being worried about. And why on earth should we worry about who is supplying as long as there is supply sufficient for the demand?

Freedom's Fighters with blog maestro Tim Worstall

This time next week (Wednesday 17th October 6-7pm) we are delighted to host the next in our series of Freedom’s Fighters with our blog maestro and Senior Fellow Tim Worstall. The sessions are informal and exclusive and are opportunities to host discussions with key individuals promoting liberty within the United Kingdom.

Tim is a Senior Fellow at the Adam Smith Institute and has written for a multitude of publishers, including The Guardian, CapX, The Times and The Wall Street Journal. He writes on the subjects of environmentalism and economics, particularly corporate tax; in 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics. He currently runs Continental Telegraph.

We would be delighted to see dedicated and loyal blog readers at the event. Freedom’s Fighters are one of our smaller events, with just 24 guests. I know a great many of you will be interested in attending and as a blog reader we’d be delighted if you’d apply to join us. We would request you to do so by emailing events@adamsmith.org.

If you aren’t able to attend we’ll be filming the event and publishing these on our facebook and youtube pages. You can find our last one, with political strategist and former Vote Leave Chief Executive Matthew Elliot below (and links here to ours talks with Daniel Hannan MEP, Paul Staines from Guido Fawkes, economist Ruth Lea, and the IEA’s Mark Littlewood).

This is an interesting plan from John McDonnell

An odd one too, but interesting all the same:

McDonnell is at great pains to calm these fears with frequent meetings soothing City and business people. I asked him what he could do to stop the rich panicking. “We are open and transparent about our plans. Is there something up our sleeve? No. Yes, we will tax the top 5% more – we’ve said exactly how much. But we are not imposing capital controls. I have never mentioned capital controls.” He has laid out his iron rule, the same as Brown’s: no extra spending over the cycle, except for capital investment.

The standard mantra is that the capital spending will pay for itself. Government borrowing costs are lower than private sector, the returns from the investments will more than cover the interest bill. Sure, that assumes that government can build to time and budget - not something ever actually shown by any British government ever - but that is the claim.

So, if there’s to be no extra spending then why do taxes need to rise?

What McDonnell is actually saying is no deficit over the cycle. Which is also what Brown promised, Ha Ha, to find that he had to constantly redefine the cycle in order to keep to it.

So, where’s this confusion come from between extra spending and a deficit? That’s because this is Polly Toynbee attempting to comment upon matters economic.

Government spending more is one thing, the deficit only rises if they don’t also raise taxes to pay for that spending. Ms. Toynbee doesn’t get this - which is roughly all we need to know about Polly’s comments upon any matter economic, no?

Do note this is that same Polly who insists that taxes must rise to pay for the lovely extra spending she would like to see. But she still can’t make the connection between that and her claim here.

Certainly America's aristocracy should be held to account

David Sirota tells us that the American aristocracy should be held to account. And most certainly they should, any ruling class of any place should be accountable:

That is because the United States has been turned into a safe space for a permanent ruling class. Inside the rarefied refuge, the key players who created this era’s catastrophes and who embody the most pernicious pathologies have not just eschewed punishment – many of them have actually maintained or even increased their social, financial and political status.

The effort to construct this elite haven has tied together so many seemingly disparate news events, suggesting that there is a method in the madness.

We approve of this idea, thoroughly.

For example, David Sirota told us that:

No, Chavez became the bugaboo of American politics because his full-throated advocacy of socialism and redistributionism at once represented a fundamental critique of neoliberal economics, and also delivered some indisputably positive results. Indeed, as shown by some of the most significant indicators, Chavez racked up an economic record that a legacy-obsessed American president could only dream of achieving.

Ah, yes, that success that led to 1,000,000 % inflation this year, economic migration of a scale not seen since East Germany had to build a wall to keep them in, the creation of a land with no food.

We should hold Mr. Sirota to account in what manner? At least we could start by deriding absolutely anything he has to say on matters economic perhaps?

And if you don’t think that the children of America’s gilded liberals are an aristocracy there’s a bridge in that now fashionable Brooklyn we’d like to chat to you about.

Madsen Moment – Nationalisation

In this week’s Madsen Moment, with re-nationalisation back in news following the UK political conference season, Dr Pirie takes a look at the failings of the past and explains simply why we shouldn’t have a rose tinted view of when the state used to run just about everything.

What excellent news, climate change is easier and cheaper to fix than we thought

Some might recall the Stern Review, that report to the British government that said we’ve really got to do something about climate change you know. That something being to impose a carbon tax. Longer memories might remember Willam Nordaus who has been saying much the same for three decades now. And the general consensus among economists is that, assuming the cause and problem are correctly identified then yes, changing the price of emissions by the addition of a Pigou Tax is the correct method.

The question becomes, of course, what should the rate be? James Hansen as argued for up to $1,000 a tonne CO2-e. The Stern Review said $80 per such tonne. Today we’re told something different:

Charge €30 a tonne for CO2 to avoid catastrophic 4C warming

This is, apparently, all we need to do:

The climate summit in Katowice, Poland, in December will conclude that the voluntary contributions of the governments are currently insufficient to put the world on a 2C, let alone 1.5C, trajectory. Policies to intensify efforts are necessary. All nations need to revise their mitigation targets to accommodate the more rapid emission reductions required to truly stay well below 2C.

New global policies are needed. One such policy would be a carbon price starting around €30 per tonne of CO2, which would very likely render investments in coal-fired plants unprofitable.

Isn’t that good news? Our required price change is less than half what Stern thought it was. Climate change is easier and cheaper to fix than we thought. Oh, and that also means that we’re already paying too much tax in the UK to fix it. That Stern $80 a tonne is about 11 p on a litre of petrol, a sum the fuel duty escalator has already more than added. And yes, the 23 p or so added by that escalator was to “meet our Rio commitments.”

To meet the climate change challenge means lowering UK taxation - can we all at least get behind that idea?

Venezuela Campaign: bad governance to blame

Venezuela’s collapse can be largely attributed to a failure of governance. While foolish economic policies garner much attention, at root they are the product of a corrupt and anti-democratic approach to governance.

Hugo Chavez’s central political principle was to seize as much power for himself as possible. He eliminated or emasculated all institutions that could possibly restrain him. Congress was replaced with a new National Assembly, which he controlled. Chavez used this Assembly to remove Presidential term limits. His intention was to rule for life, which he duly did for 14 years until his death from cancer in 2013.  He switched to rule by Presidential decree and made up the law as he went along.

Chavez used the National Assembly to end judicial independence and pack the Supreme Court with cronies. The Supreme Court was then used to purge lower levels of the judiciary, with the firing of hundreds of lower court judges and replacement with Chavista loyalists.

Chavez also attacked independent trade unions, banning legitimate strikes, leading reprisals against strikers, and denying collective bargaining rights to unions whose election results were not state approved.

Chavez removed Presidential term limits because he was confident he would never lose another election. He ended the independence of the elections watchdog, the CNE, by packing it with loyalists. The CNE then abused its powers to ensure that Chavez would win every election he contested. Chavez’s United Socialist Party spent vast state funds on its election campaigns, the secret ballot was compromised and those who voted against Chavez faced losing state benefits and dismissal from state jobs. In a country where an ever-larger number of businesses were taken into public ownership, this made voting against Chavez extremely unwise. Electoral fraud is now so serious that in 2017 even the company that had supplied the technology for Venezuelan elections since 2004 stated that the latest election was clearly rigged.

PDVSA, the state oil company, used to enjoy considerable autonomy in corporate governance. It was run by professional managers under a professional board which reported to several different ministries. Chavez scrapped the governance structure and brought PDVSA directly under the control of the President’s office. This facilitated his total control over spending without any accountability or transparency. PDVSA had become Chavez’s personal oil company, and Chavez pillaged it at will.

Corruption was a double-edged sword that Chavez regularly wielded. Officials were encouraged to be corrupt. However, a step out of line and that corruption would be exposed to serious consequences. State contracts were regularly awarded as prizes to loyal allies, almost always without competitive bidding. Allies and relatives were given access to preferential exchange rates facilitated by control of the central bank, also now under direct Chavista control. This allowed them to make millions. Indeed, Chavez’s daughter María Gabriela Chávez, is now the richest woman in Venezuela with an estimated fortune of $4.2 billion. Foreign companies seeking to export to Venezuela were required to pay unofficial commissions to Venezuelan officials in the range of 15% to 20%. Imports from Argentina alone were estimated to total over $650m between 2004 and 2008. The military was also co-opted through the encouragement of rampant corruption. For example, state funds were provided to the armed forces to construct a large sugar plant in the state of Barinas in 2008. The plant was never built, and the funds disappeared.

Unsurprisingly, in 2008 Venezuela ranked 158 out of 159 countries on the Transparency International Corruption Index.

Chavez also ensured that the media was not able to hold him to account. He enacted vaguely defined “incitement” provisions, allowing for arbitrary suspension and license revocation of TV and radio stations such as RCTV. He arrested media executives when they published or broadcast material unfavourable to the Government. Between August 2009 and August 2010 the central government closed 34 radio stations, 2 regional TV stations, 6 cable TV stations and 2 newspapers. Chavez would instead require all TV stations to air his own lengthy TV shows, during which he would smear opponents and give away flat screen televisions to pre-selected voters.

This whole tragedy underlines the fundamental importance of core governance values and standards.  These essential principles include the separation of powers between the executive, legislature and judiciary; an independent judiciary upholding the rule of law; a free press; respect for human rights, independent investigative institutions reporting to the legislature; transparency of government actions and accountability to the people. These are essential protections against an incompetent, venal and self-serving government. All these core standards were abandoned by Hugo Chavez, and the results are plain to see.

More information on the Venezuela Campaign can be found on their website. 

England's amazing disappearing Green Belt

Entirely bloodcurdling stories of how we’re entirely destroying England:

New statistics show the nation’s Green Belt has shrunk by more than 10,000 hectares in a decade with campaigners warning land which is supposed to be off limits is increasingly being targeted for development.

Ten thousand’s a big number, horrifying. Over a decade too!

The extent of the designated Green Belt in England as at 31 March 2017 was estimated at 1,634,700 hectares, around 13% of the land area of England.  Overall there was a decrease of 790 hectares (less than 0.05%) in the area of Green Belt between 31 March 2016 and 31 March 2017. In 2016/17, eight local planning authorities adopted new plans which resulted in a decrease in the overall area of Green Belt compared to 31 March 2016.

Ah, so we can do this for the next century then and we’ll not even have eaten 5% of that Green Belt. And who really did have a feel for these numbers, this idea that an entire 13% of the country should be walled off, no one allowed to do anything with it, to prevent that sprawl so hated by those who would tell us how and where to live? Note that 13% is more than the entire built environment, some 3 to 4 times the amount used for housing.

Sounds to us like there’s plenty of that which can be used. There is also this:

The decision by councils to remove protections on large swathes of land has been blamed on a “perfect storm” of hard-to-hit housing targets and developers failing to build the homes they have permission for as they instead eye development on lucrative “shovel ready” Green Belt.

If a particular, or type of, development is more lucrative then that’s the same statement as developing it adds more value. More value added is, by definition, us all getting richer. Developing the Green Belt is more lucrative, adds more value, let’s do more of it, all get richer.

After all, building houses people would like to live in, where they’d like to live, sounds like a useful description of a reasonable housing policy, doesn’t it?