Data Insight: Measuring inequality-driven skills gaps in the UK labour market

This Data Insight uses a simulation model built from the Annual Survey of Hours and Earnings (ASHE) linked to 2011 Census – England and Wales dataset. The model compares two simulated labour markets: one where applicants from ethnic minority groups are less likely to be invited to interview (“callbacks”), and one where all applicants have the same chance of getting a callback.

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What we found

Key findings at a glance

Removing hiring discrimination improves both access to jobs and how effectively skills are built and used across people’s careers:

• About £52,000 more in total earnings per worker over the simulated career.
• Around 4 percentage points more time in employment over the career.
• About a 21% increase in direct job-to-job moves.
• Around a 6% reduction in worker–job skill mismatch.
• The largest gains are in transferable skills that are useful across many occupations.
• Workers from ethnic minority groups see the strongest improvements, especially in time in employment, transferable skill growth and long-run earnings.

Taken together, these gains imply more efficient use of skills across occupations, with likely productivity benefits through reduced mismatch and stronger job-to-job progression.

Hiring discrimination reshapes career skill development

The clearest finding is that hiring discrimination does not only affect who gets hired today. It also changes the transferable skills workers are able to build over their careers, which then shapes the kinds of jobs they can access later. Small disadvantages at the hiring stage can therefore grow into larger differences in skills and opportunities over time.

When hiring penalties are removed, workers finish their simulated careers with higher overall skill levels and about a 5.7–6.1% reduction in worker–job mismatch (Figure 1). These changes show that fairer hiring improves both the skills people build and how well those skills fit the jobs they do. Over the course of people’s careers, this leads to more effective use of skills in the labour market.

Better alignment between workers and jobs also means existing skills are used more effectively across the economy, because more people move into roles where they can be most productive. The increase in long-run earnings is substantial – around £51,594 on average over the simulated career – alongside a 3.77 percentage point increase in time spent in employment and substantially more direct job-to-job movement. These patterns suggest that observed earnings inequalities are partly the result of earlier inequalities in access to skill-building opportunities through work.

Transferable skills drive much of the gain

The largest skill gains and strongest reductions in mismatch (Figure 2) are seen in the transferable capabilities that help workers move across occupations. These capabilities include social, technical and resource-management skills that are useful in many different roles. This suggests that discrimination suppresses exactly the kinds of skills people need to move between jobs and adapt to changes in the economy.

Average job-side skill requirements change very little between the two simulated scenarios. This indicates that the gains arise mainly because workers build stronger transferable skills through better career sequences, not because jobs themselves become less demanding. In other words, fairer hiring changes who is able to build these skills, rather than lowering the skill demands of work.

At the labour-market level, improvements in skills and matching appear quickly once hiring penalties are removed, with a sharp rise in average skill levels and a fall in mismatch. The biggest early improvements are seen among workers entering the labour market, who benefit from better first job matches and faster skill growth. Cohort analysis shows that these gains widen rather than fade over time as better early job matches compound into stronger later-career skill profiles.

Workers from ethnic minority groups benefit most

The skill effects are not distributed evenly across the labour market. Workers from ethnic minority groups experience the largest improvements in skill accumulation and the largest reductions in mismatch when discrimination is removed, alongside the largest gains in direct job-to-job mobility and cumulative job entries. This indicates that hiring penalties restrict access to the kinds of job histories that allow people to develop new and transferable skills over time.

Early missed opportunities therefore widen into large differences later in people’s careers. In the equal-treatment scenario, workers from ethnic minority groups spend more time in employment, achieve higher final skill levels and experience stronger wage progression, which substantially narrows ethnic gaps in long-run outcomes. These results show that fairer hiring can both improve long-run prospects for ethnic minority workers and reduce ethnic inequalities in the labour market.

Why it matters

Hiring policy is also skills policy

These findings show that decisions about who gets hired are also decisions about how skills are built in the economy. Barriers at the point of hiring do not only create short-run unfairness in who gets a job; they also push workers onto different career paths, changing the roles they can access and the skills they are able to build over time. Small differences in callback rates can therefore grow into lasting gaps in skills and long-run outcomes, especially for groups that face persistent hiring penalties.

Productivity and mismatch

The strong reduction in worker–job mismatch points to a broader productivity benefit. When discrimination is removed, workers move more smoothly into roles that better use and extend their transferable skills, leading to higher lifetime earnings and more time in employment. Over time, this means more of the existing workforce is employed in jobs where their skills can contribute most.

This is consistent with wider evidence that higher skill mismatch is linked to lower labour productivity and weaker growth across countries and industries (OECD, 2016). Taken together, the results suggest that discrimination reduces productivity not only because it is unfair, but also because it stops existing capabilities from being used where they are most valuable.

Inequality and workforce resilience

The unequal gains observed for workers from ethnic minority groups indicate that discrimination contributes to long-lasting gaps in skills as well as wages. Interventions that target hiring processes may therefore influence long-run inequalities in progression, skill development and resilience to future labour market shocks. By changing who can access skill-building roles early in their careers, such interventions can help prevent gaps from widening over time.

Making hiring processes fairer could strengthen both equality of opportunity and long-run productivity by reducing mismatch, supporting better job-to-job progression and using transferable skills more efficiently across the UK economy. These changes would leave the workforce better placed to adapt to future economic shifts and policy priorities. Over the longer term, this can support a more resilient and inclusive labour market.

The results also have implications for how upskilling and progression programmes are designed. They show that, under discriminatory hiring, some transferable skills become systematically under-developed for workers from ethnic minority groups. Targeted support that focuses on these skills can therefore complement fairer hiring practices by helping to close the long-run gaps in skills that discrimination creates.