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Ethnic penalty in sociology is defined as 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 to take non-cognitive factors into consideration for explaining unwarranted differences between individuals of similar abilities but differing 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". Kislev divided the ethnic penalty into four components: individual characteristics, country characteristics, the social environment in the host country, and the policy environment in the host country and tested them separately.