COVID-19 and the UK’s BAME communities – an economic perspective

(FCA Insights)


Not everyone has been impacted by the coronavirus in the same way, and the type and severity of impacts are wide-ranging. Impacts can vary from health, to employment and personal finances. In a series of articles, Insight authors are examining the impact of Covid-19 on different demographic groups; the current article focuses on the economics of Covid-19 and the Black, Asian and Minority Ethnic (BAME) population.

The Coronavirus virus and lockdown has brought unprecedented challenges for people across the UK. But the particular effects of job loss or insecurity, income falls and furlough do not act in isolation. The pattern of impacts may interact with, and potentially alter, pre-existing inequalities.

Understanding the impact of the crisis on different groups of consumers will help regulators anticipate how these different groups may interact with financial services in the future and to assess whether existing regulations will continue to be effective.

In a previous Insight article, we examined Covid-19’s effect on intergenerational differences. This article is the first in a further set of studies examining its impact on personal finances and use of financial products and services through the lens of ethnicity, gender and disability – beginning with the labour market consequences of Covid-19 for the UK’s BAME communities and how these have impacted household finances.

It has been widely reported that Black, Asian and Minority Ethnic (BAME) adults have been particularly affected by the pandemic’s direct health effects. In October, the NHS Race and Health Observatory reported that people from ethnic minority groups were nearly three times as likely to contract Covid-19 and five times more likely to experience serious outcomes.

And fatalities show a similar grim correlation. In May, the Institute for Fiscal Studies reported that, accounting for age and geography, hospital fatalities among Bangladeshi ethnicities were twice those of White British, while Pakistani and Black African fatalities were respectively 2.9 and 3.7 times higher than fatalities for the White British population.

There have also been differences in the economic impact. Official population estimates show larger shares of ethnic minorities are of working age. Therefore, they are potentially more likely to have also been affected economically through loss of earnings and/or roles – especially the self-employed. There may also be differences across racial and ethnic groups within age cohorts or after controlling for other factors that could affect employment.

To understand the economic impact of Covid-19 by ethnic subgroup, we analyse data from the Understanding Society Covid-19 survey. Understanding Society was launched by the National Institute of Economic and Social Research and is the largest longitudinal household panel survey of its kind. Their latest Covid-19 survey, conducted periodically throughout the pandemic, has a sample size of around 20,000 UK adults.

Pre-existing labour market differences and exposure to pandemic shock

There are a number of ways in which someone’s position in the labour market heading into the crisis could have rendered them more susceptible to the financial effects of Covid. The most obvious is the sector in which someone worked; the lockdown and other government restrictions, as well as changes in consumer behaviour in response to the pandemic, had very different impacts on different sectors of the economy. Other factors that could make someone more or less susceptible to the labour market effects of the crisis include whether they were keyworkers, self-employed, or on temporary contracts.

On a number of metrics, BAME workers looked quite similar to White workers heading into the crisis in February 2020. Overall employment levels were similar, with around 59% of BAME adults in some form of employment (including self-employment) compared to 61% for White adults. If we restrict the sample to just the working-age population, White individuals have a higher employment rate; this is due to, among other factors, the lower female participation rate among BAME adults. Of those employed, 13% of BAME individuals were self-employed compared to 11% of White individuals. There were also no differences between BAME and White workers in the proportion of those on temporary or non-fixed hour contracts. However, going into the crisis median weekly earnings for BAME workers were slightly lower than those of White workers, at roughly £335 compared to £345.

In addition, the proportion of BAME employees was also unevenly distributed across the different sectors. The average proportion of BAME employees across all sectors stood at around 8%, pre-crisis. However, that proportion varies from 3% BAME in Manufacturing and Construction to 14% in Transportation and Storage services.

Similarly, the economic impacts were not felt equally across sectors. One measure of economic impact is the fraction of workers in each sector who were placed on furlough, which is correlated with reduced hours and earnings. According to HMRC data, the sectors with the highest proportion of employees placed on furlough, as of July 2020, were ‘Arts, Entertainment and Recreation’ services and ‘Accommodation and Food’ services (58% and 57%); the sector with the smallest share on furlough was ‘Public Administration and Defence’ at 4%.

The chart below shows the percentage of BAME employees in each sector pre-crisis. Sectors have been ordered by the rank of furlough rates, with the highest rates of furlough on the left.

In this chart, we see that some of the sectors that have been heavily impacted by Covid-19 (as measured by the fraction of workers put on furlough) had a high percentage of BAME workers (eg. Accommodation and Food), but others did not (eg. Manufacturing). Looking solely at these distributions of workers and furlough rates by sector, BAME workers would not necessarily be expected to have been disproportionately impacted by the pandemic through the labour market channel.

Employment and earnings under Covid-19

While sectoral analysis gives little sense of structural differences that could drive a wedge between ethnic subgroups in terms of labour market impact from Covid-19, some other metrics related to employment and income reveal a marked difference between BAME groups and non-BAME.

In addition to furlough, there have been reduced working hours and outright jobs losses for some employees. In some cases, this has been linked to the economic shutdown and loss of trading opportunities; this includes many self-employed, who have found themselves unable to trade due to restrictions. In other cases, employees have reduced their hours or left work voluntarily to reduce exposure for vulnerable family members or to take up caring responsibilities.

A simple way to measure the labour market effects of the crisis is to measure the change in earnings – this can include total loss of earnings due to redundancy or reduced earnings due to furlough or fewer working hours. Using this approach, we find a significant difference between how BAME and White workers have been impacted by the crisis.

As of the end of July, the earnings of BAME workers had dropped by an average of 14% (vs. their February level), whereas earnings of White workers had dropped on average by 5%.

This difference in average earnings loss remains substantially unchanged even when we control for a broad range of other individual characteristics (for example age, education level) and features of employment (sector, employer size).

Looking at BAME as one group may mask important variation between diverse subgroups. When we split out BAME subgroups (into Asian, Black, Arab, Mixed ethnic group and others) as in the chart below, it is in the Asian group that we see a disproportionately large and statistically significant loss in average earnings compared to White individuals. Note that these results do not imply that important differences do not exist for other BAME subgroups. The Asian community is the largest BAME subgroup, so more data is available for this population, which allows a more precise, statistically reliable statement for this group.

This raises a number of immediate questions.

First of all, was there a difference in the rate at which BAME and White employees were furloughed, that might explain the difference in average earning effects? The short answer to this is no. The proportion of BAME and White employees furloughed by July 2020 was very similar, and in fact the proportion of White workers furloughed was fractionally higher.

The second question is whether we can attribute the much sharper fall in earnings among BAME communities to an earnings loss whilst remaining employed. In other words, did BAME employees see, on average, more cuts to pay or working hours? Again, the short answer is no. If we examine only those who stayed in employment and were not furloughed, we see that, between February and July, earnings increased by an average of 2.5% among Whites and by 2.8% among BAME individuals.

The final question is then, whether the sharper fall in average BAME earnings was due to ceasing employment altogether. Here, as a process of elimination may have led readers to realise already, the answer is a clear yes.

As of the end of July, BAME individuals who had been employed in February were significantly more likely to have exited employment at some point during the pandemic. In fact, the proportion who had left employment altogether was twice that among White individuals. And again, this holds even when other characteristics such as age, education and employment sector are taken into account statistically.

Of course, people may exit employment for different reasons. Most respondents to the Understanding Society survey did not give a specific reason for having ceased employment. Among those who did, some cited leaving work to take on caring responsibilities, but most stated they were made redundant or that they ceased trading. However, there was no statistically significant difference between BAME and non-BAME workers across these responses.

Hence, the negative impact of the pandemic on the earnings of BAME individuals is largely due to the higher rate at which they have exited employment. This insight is confirmed when looking at labour market effects by ethnic groups. Asians are statistically more likely to have exited employment at some point during the pandemic.

Future prospects

As well as examining the specific effects on individual’s employment and earnings, we have explored differences between ethnic groups in terms of concerns for the future outlook.

A note of caution: our latest analysis is based on the Understanding Society survey that took place in July and therefore will not reflect changes to optimism over the second half of last year. Equally, of course, many of the economic effects of the pandemic are still playing out in company administrations, profit warnings and unemployment statistics.

But, with these caveats, it is also important to consider the effect of Covid-19 on optimism or confidence in the financial future across ethnic groups.

In July BAME individuals were slightly more concerned about their employment prospects but much more concerned about their financial security.

Almost a quarter (24%) of BAME respondents were worried about their job security, compared to one fifth (20%) of White individuals, though the difference was not statistically significant.

When it came to their ability to pay their bills the difference in optimism was starker. Among BAME individuals, 43% were concerned about meeting bill commitments in the next three months, compared to, a still worrying but significantly lower, 17% among White individuals.

Events of the last six months may have altered some of these findings, but there is no obvious reason why the sharp differences between BAME and White optimism will have disappeared.


On some metrics there appears to have been little or no difference between the financial effects of Covid-19 on different ethnic communities – rates of furloughing and in-work earnings show no statistically significant difference. But a markedly higher proportion of individuals from the BAME population have ceased employment – due to redundancy or other causes.

As a result, BAME individuals have also, on average, suffered a significantly worse drop in earnings than their White counterparts, even when age, employment sector and other factors are taken into account.

Within the broad term of BAME there are of course distinct ethnic subgroups, and the differences are more obvious for some groups – with Asian individuals potentially emerging as most exposed to some of the labour market impacts in our analysis, for example, although small sample sizes for other groups make statistical comparisons difficult.

Finally, it seems the subjective concerns for financial security are disproportionately worse among BAME individuals. If the differences in labour market impact are persistent and the differences in financial concerns are realised, some of the gaps between BAME and non-BAME groups may be widened further in coming months.

It would not be surprising if some of the pre-crisis differences in economic situation and financial lives of BAME and White communities, combined with differences in how they’ve experienced Covid-19, were in turn driving differences in how they have reacted to the crisis.

We are particularly interested in how financial behaviour of BAME and White individuals may have been impacted by the pandemic – how differences by subgroup may have driven different needs for support and use of coping mechanisms e.g., how they may have used credit, savings and other financial products during the crisis. Future Insight articles will use the FCA’s extensive Financial Lives Survey data to look at this closely.


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