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 and refined with greater specificity by another Oxford sociologist, Reza Hasmath and, recently, by another sociologist, Elyakim Kislev. 

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”. Recent research has explored the possibility of a “double penalty” which considers the interaction effects of ethnicity and gender.

Reza Hasmath concludes that exclusionary discrimination is not the only potential explanation for ethnic penalties. Conditions such an individual’s social network, a firm’s working culture, and a community’s social trust should be strongly factored.

 Silberman and Fournier, in their investigation of ethnic penalty in France, also highlight that an employer may not necessarily wish themselves to discriminate, but that they may be pressured by “a given company’s employees or a customer wishing to have nothing to do with an individual with this or that characteristic”.

Elyakim Kislev’s work divides the ethnic penalty into four components:

1. Individual characteristics, 

2.Country characteristics, 

3.The social environment in host country, and 

4.The policy environment in host country. 

Kislev shows that the main reasons for immigrants’ disadvantage in terms of labor force participation and household income are both origin and host country characteristics, while the effects of ethnic origins, social exclusion, and policies are weaker. However, ethnic origins and social exclusion actually play a central role in determining unemployment of immigrants.

The above Theory may somewhat Relate to Indian Labour market, Considering the Multi Cultural & Regional Demographic. In Few industries Regional Language is a Barrier, otherwise Skill competency always is a Priority.