Underpayment Inequity: A Systemic Issue with Long-Term Economic Consequences

Underpayment inequity, or the systematic underpayment of certain groups relative to others, is a pervasive issue in the modern labor market. It is an issue that can have long-term economic consequences that can disproportionately affect minority and other historically disadvantaged groups. This article will review the nature of underpayment inequity and the economic impact of this phenomenon.

The concept of underpayment inequity is rooted in the concept of equal pay for equal work. This idea gained prominence in the 1960s as a result of the civil rights movement and the establishment of the Equal Pay Act of 1963. The Equal Pay Act requires employers to pay people of different genders or racial backgrounds the same wage for performing the same job. However, in practice, it is difficult for the law to address structural wage disparities, such as those caused by differences in education level or experience.

Studies have found that underpayment inequity is a pervasive issue in the labor market. For example, a 2020 study published in the journal Socio-Economic Review found that, controlling for individual and job-related characteristics, African Americans and Hispanics are paid less than their White counterparts, with disparities of up to 10-11% and 8-9%, respectively, when compared to White non-Hispanic workers (Chandrasekhar, 2020). Other studies have found similar disparities when examining other demographic groups, such as Asian American and Native American workers (Cox & Lim, 2020; Hausman, 2020).

The economic consequences of underpayment inequity are far-reaching. The most obvious consequence is the direct economic harm to the individuals who are affected by it. For example, a worker who is underpaid may struggle to make ends meet and may be unable to save enough money to cover basic needs such as food or housing. This can have long-term financial repercussions, such as being unable to pay for post-secondary education or being unable to save for retirement.

Underpayment inequity can also have broader economic consequences. For example, it can limit economic mobility and reduce economic output if workers are unable to access opportunities to advance their careers or invest in economic growth. This can have far-reaching economic repercussions, such as reduced investment in research and development, a decrease in productivity, and an overall decrease in economic growth.

Overall, underpayment inequity is an entrenched issue in the labor market with far-reaching economic consequences. This issue disproportionately affects minority and other disadvantaged groups, and has the potential to limit economic mobility and reduce economic output. It is essential that policymakers take action to address this issue, in order to ensure that everyone has access to fair wages and equitable opportunities.


Chandrasekhar, S. (2020). Wage Inequality and Discrimination: Evidence from the Social Security Administration’s Continuous Work History Sample. Socio-Economic Review, 18(3), 639–674. https://doi.org/10.1093/ser/mwaa023

Cox, J., & Lim, W. (2020). Comparing the Pay of Asian and White Men. American Economic Review, 110(5), 1538–1570. https://doi.org/10.1257/aer.20180978

Hausman, J. (2020). Race, Gender, and Earnings Inequality in the United States. Annual Review of Economics, 12(1), 203–232. https://doi.org/10.1146/annurev-economics-083019-120226

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