Pay gap is widening as costs soar

New research reveals workers in the UK’s third sector get paid 7% less than those working in other fields.

While the pay gap has long been recognised within the third sector, this is thought to be the first time it has been backed by research.

Undertaken by think tank Pro Bono Economics, the study, shows that charity sector staff were collectively paid an estimated £1.5 billion less than their counterparts in other sectors in 2019.

It comes as data from the Bank of England showed that the current cost of living crisis is causing the pay gap to grow – with average wages rising in the year to May 2022 by approximately 3.8% among charities, compared with 5.6% for businesses.

Jamie O’Halloran, economist at Pro Bono Economics, said: “For the first time ever, this research puts a number on the size of the enduring pay gap between the charity sector and the rest of the economy.

“Charity pay has long been a subject that provokes strong reactions. It is a complex topic, and people are passionate about ensuring that the money they donate makes the biggest impact possible to the causes and groups that they support. Proper investment in staff is one of the ways that money can be put to the greatest possible use.

“As an employer, the charity sector does not sit in isolation; it has to compete with the rest of the economy for staff and it relies on the fundraisers, volunteer managers and service delivery professionals whose work sustains it.”

The study warns that the growing pay gap threatens to weaken the sector and its impact at a time of increasing demand for charities’ services.

Four in five charities already say they are struggling to recruit at present, and systemic low pay is likely to exacerbate the problem.

The PBE analysis, drawn from the largest household survey in the UK, shows the size of the charity sector pay gap grows as people age. For those in their early 20s, the gap is 2.7%. But for charity workers aged between 36 and 40, their pay is 8.4% less on average than the rest of the economy, growing to 9.4% for those aged 46-50-years-old.

According to the study, charity workers with higher qualifications experience a bigger difference in their pay than those with lower qualifications, with graduates earning an average £40,000 less over their working lifetimes than their similarly qualified peers in the rest of the economy.

The analysis also identified that the charity sector itself continues to endure a gender pay gap, with female workers earning 4.1% less per hour on average than their male colleagues.

However, the research found that men working in the charity sector experience a larger pay gap relative to non-charity workers than women working in the sector. On average, male charity workers earn 12.3% less per hour than similarly qualified men working across the rest of the economy, while female charity workers earn 4.7% less than their counterparts in other sectors.

While it is well-known that people working in the charity sector are motivated by more than just pay, these significant pay gaps are a growing concern as they have the potential to weaken the sector and its impact, especially at a time of heightened need.

Lagging pay limits the pool of people willing to work for charities and means that limited pool is less diverse – as lower pay is likely to make it more difficult for people from disadvantaged backgrounds to take up opportunities. It also means the sector is being undervalued in the national accounts.

In addition, low pay can affect morale in the workforce, particularly during a cost of living crisis, and has the potential to drive people out of the sector at a time when demand for charities’ services is accelerating.

Jamie O’Halloran added: “The widening pay gap identified in this research poses a serious threat to the sector and its impact, especially during a cost of living crisis. Lagging pay could lead to an exodus of talented staff and acts as a barrier to many from diverse backgrounds considering a career in the sector.

“Amid soaring inflation and with a recession predicted, the economic challenges faced by charities are compounded by the issues created by low pay, at exactly the time the nation needs the sector to be firing on all cylinders.”

Neil Heslop, Chief Executive of the Charities Aid Foundation said: “This helpful new data provides insight for charity leaders as they consider the challenges to come over the next year. Charities are under significant pressure to meet increasing demand from their communities due to the cost-of-living crisis, whilst being impacted on many fronts by rising costs and significant wage pressures themselves. Our own research found that four in five (80%) charity leaders are concerned about managing demands for higher wages from staff.

“Volunteers and workers in the charity sector are largely driven by a desire to help people and make a difference. But they face the same concerns as those in other sectors about how they can continue to look after their families experiencing rapidly rising bills.”