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In sociology, the term ethnic penalty is used in reference to the economic and non-economic disadvantages that ethnic minorities experience in the labour market compared to other ethnic groups. As an area of study among behavioral economists, psychologists, and sociologists, it ranges beyond discrimination so non-cognitive factors can also be taken into consideration in order to explain why unwarranted differences exist between individuals with similar abilities because they are members of different ethnicities.
The concept of the ethnic penalty was first discussed by Oxford sociologist Anthony Heath. Heath originally looked at the ethnic penalty by making comparisons between two groups in Britain, whites and blacks, noting that unemployment of black African men was twice as high as unemployment of white men. Using 2001 UK census data, Johnston et al. suggests that all ethno-religious groups in the UK experienced ethnic penalties in the labour market, with the exception of White British ethno-religious groups. Carmichael and Woods additionally show that "the penalties paid vary considerably between the minority groups" studied, in the case of black, Indian, Pakistani, and Bangladeshi workers in the United Kingdom. Simpson, Purdam, Tajar, et al. also found that this differs between UK-born members of an ethnic minority and those of the same ethnicity born abroad – UK-born males are more likely to be unemployed than males from overseas, while UK-born women "tend to do better in the labour market than their overseas-born counterparts". Beyond this, Simpson et al. confirmed that this disadvantage is not tied to "concentration of ethnic minorities in deprived areas"; those of an "ethnic minority were still twice as likely to be unemployed than their White counterparts... even in areas that are predominantly White".
Ethnic penalties are usually measured as differences in labour market outcomes between minorities and the majority that remain after controlling for human capital and social background characteristics in a statistical model. The ethnic penalty can be related to unemployment, occupational status  or over-qualification differences. Ethnic penalties in the labour market are explained by a diversity of factors, such as individual characteristics, country characteristics, the social environment in the host country, and the policy environment in the host country and tested them separately. However, ethnic penalties are usually attributed employer discriminatory behaviour against minorities.
- Heath, A.F. and J. Ridge (1983) “Social Mobility of Ethnic Minorities”, Journal of Biosocial Science, Supplement No. 8: 169-184.
- Johnston, R. et al. (2010) "Ethno-Religious Categories and Measuring Occupational Attainment in Relation to Education in England and Wales: A Multilevel Analysis’, Environment and Planning A 42(3): 578-591.
- Carmichael, F.; Woods, R. (2000). "Ethnic Penalties in Unemployment and Occupational Attainment: Evidence for Britain". International Review of Applied Economics. 14 (1): 71–98. doi:10.1080/026921700101498. S2CID 154020583.
- Simpson et al. (2006) "Ethnic Minority Populations and the Labour Market: An Analysis of the 1991 and 2001 Census", Department for Work and Pensions.
- International Migration Outlook 2016. 2016. doi:10.1787/migr_outlook-2016-en. ISBN 9789264258440. Retrieved 2022-09-11 – via www.oecd-ilibrary.org.
- Ubalde, Josep; Alarcón, Amado (2020-10-19). "Immigrant disadvantage in the labour market: the role of attitudinal context". European Societies. 22 (5): 636–658. doi:10.1080/14616696.2020.1719180. ISSN 1461-6696. S2CID 213923819.
- Prokic-Breuer, Tijana; McManus, Patricia A. (June 2016). "Immigrant Educational Mismatch in Western Europe, Apparent or Real?". European Sociological Review. 32 (3): 411–438. doi:10.1093/esr/jcw005. ISSN 0266-7215.
- Kislev, Elyakim (2016-09-19). "Deciphering the 'Ethnic Penalty' of Immigrants in Western Europe: A Cross-Classified Multilevel Analysis". Social Indicators Research. 134 (2): 725–745. doi:10.1007/s11205-016-1451-x. S2CID 255005352.