Workplace Discrimination: The Cost

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The moral case for ending discrimination is clear, but its economic benefits remain largely unexplored. By our calculations, ethnic discrimination in the workplace costs the UK £40 billion annually. That’s £10 billion more than Rishi Sunak’s latest coronavirus response package, or equivalent to 1.8% of our Gross Domestic Product.  

Costing Discrimination 

Experiences of discrimination (EOD) are positively associated with a range of mental disorders including depression, anxiety, and PTSD. A 2016 study found that 20% of cases of depression amongst young male Australians of ethnic minority backgrounds are attributable to EOD.

Another study finds that ‘cumulative exposure to racial discrimination has incremental negative long-term effects on the mental health of ethnic minority people in the United Kingdom.’ Similarly, Assari et al find that ‘an increase in perceived racial discrimination from age 20 to 23 was predictive for an increase in symptoms of anxiety and depression from age 20 to 32.’

There is no dispute that persistent experiences of discrimination, racial or otherwise, reduce a person’s wellbeing. Route2 has developed a methodology to evaluate the economic costs of racial discrimination in the workplace. We estimate that 19.8% of cases of mental health disorders amongst BAME persons are attributable to EOD in the workplace.  

37% percent of BAME workers have been bullied, abused, or experienced racial discrimination at the hands of their employer. 19% have experienced discrimination in the form of being denied training or promotion. We find that experiences of discrimination in the workplace against the UK’s 5.7 million BAME persons aged 16 – 64 have led to 420 thousand cases of mental illness, leading to a reduction in wellbeing equivalent to 132 thousand years of life (annually). 

This reduction in societal wellbeing carries severe economic costs. For the affected individuals themselves, Route2 estimates a wellbeing loss equal to £8.4 billion in economic cost. A reduction in individual wellbeing means that employees are less productive at or absent themselves from work, leading to a cost incurred by businesses of £1.7 billion per year. Where discrimination results in mental illness, the NHS bears a cost of £1.9 billion annually, while out-of-pocket medical expenses for individuals costs £1.7 million. These figures alone equal a staggering £12 billion.

Discrimination at work and in society creates socio-economic intergenerational inequalities which can be measured by looking at the ethnic diversity of the UK’s labour force.

Route2 has adapted a methodology published by the UK government which considers the estimated economic impact of missed progression opportunities (such as promotions to managerial positions) and missed participation opportunities in the workforce.

We estimate that the lack of progression opportunities costs £5.9 billion and a lack of participation costs £14 billion. These two costs mean that the government receives £4 billion less tax for public investments and services (using the 2020-2021 average income tax rate).  

For the businesses themselves, research suggests there’s an additional hidden cost of turnover, as employees who feel their company does not reflect the makeup of society are more likely to leave a business prematurely. This has a total cost of £4 billion. 

All these costs together come to £40 billion. This estimate is more than likely an understatement and should be considered as such. This evaluation has not included other protracted economic costs of discrimination which include increased likelihood of unemployment, homelessness, other physiological illnesses, and missed educational opportunities. Costing discrimination in society at large, while beyond the scope of this evaluation, would result in a higher figure. 

More to be done 

In 2017, the UK government published The McGregor-Smith Review, entitled ‘The Time for Talking is Over, Now is the Time to Act – Race in the Workplace’. The review published findings that the potential benefit to the UK economy from full representation of BAME individuals across the labour market, through improved participation and progression, is estimated to be £24 billion a year, which represents 1.3% of GDP.  

Our friends at Business In The Community have since followed up (twice) surveying businesses who collectively represent 1.3 million people in the UK and 3.9 globally. Their findings suggest that only 41% of businesses have set targets to increase racial diversity at board or senior level and only 45% of employers have commissioned a review into bullying and harassment in the workplace (BITC 2019).

These troubling statistics come in spite of the fact that, according to a previous review, in 2018, 1 in 4 BAME employees reported that they had witnessed or experienced racist harassment or bullying from managers in the last two years (BITC 2018).

This is unfortunately a growing trend; since 2015 there has been an increase in the proportion of BAME individuals reporting to have witnessed or experienced racist harassment or bullying from customers or service users (up to 19% from 16%). People of mixed ethnicity experienced the largest increase in harassment or bullying from customers (20% up from 13%) (BITC 2018).

These figures could be an understatement of the true hidden prevalence of discrimination, the Trade Union Congress has reported that 37% of black or minority ethnic workers have been bullied, abused or experienced racial discrimination by their employer (TUC 2017).

The McGregor-Smith review is one of many government reviews of racial discrimination that has yet to be fully addressed, and unfortunately it won’t be the last. Businesses have a unique opportunity to move quickly, address the recommendations and contribute to reducing centuries of racial discrimination through active monitoring and intervening.   

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Route2 delivers unique insights into the total impact of business activities. We offer businesses expert advice and analysis about historical and future performance. Our services (coined Value2SocietyTM) strengthen decision making, establish competitive advantage and enhance the value business delivers to society. Route2 delivers unique insights into the total impact of business activities. We offer businesses expert advice and analysis about historical and future performance. Our services (coined Value2SocietyTM) strengthen decision making, establish competitive advantage and enhance the value business delivers to society.

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