Evidence library

As the cost-of-living crisis deepens, every employer in the country is having to review what they are paying their employees. In the charity sector, that debate is particularly complex. There is a moral dimension: it is fundamental that money donated for charitable purposes is used in the most effective manner possible, and the public has concerns that is not being achieved when pay is perceived as excessive. There is also a purely financial dimension: when funds are in short supply and there is huge need in the country, prioritisation is a challenge charity leaders must constantly wrestle with. And there is an economic dimension: as an employer, the charity sector does not sit in isolation, and it has to compete with the rest of the economy for staff.

In the wake of a pandemic in which one in four charities experienced a decline in income of 40% or more, the sector is now anticipating a recession which would put charitable services, campaigning and community support under even greater demand. Money is undeniably tight and staff costs are already a major line of the sector’s expenditure, accounting for around 40p in every £1 of spend.

Yet there is already a large gap between pay in the sector and the rest of the economy. This new research demonstrates the scale of that pay gap by making use of the largest household survey in the UK.

After accounting for differences in personal (e.g. age and qualifications) and job (e.g. industry and occupation) characteristics between those working in the charity sector and the rest of the economy, we find the hourly wage gap to be 7.0%

The pay gap widens as people progress through their careers, peaking at 9.4% for those aged 46 to 50. People with higher levels of qualifications experience a bigger difference in their pay than those with lower levels of qualifications, earning an average £40,000 less over their working lifetimes than their similarly qualified peers in the rest of the economy.

Meanwhile, men working in the charity sector record a larger pay gap relative to non-charity counterparts than is the case for women, coming in at 12.3% and 4.7% respectively. Nevertheless, the charity sector continues to endure a gender pay gap of 4.1%.

This affects charity workers as individuals, but it also has multiple impacts on the sector more broadly – affecting how it is valued, its competitiveness as an employer, and its effectiveness at meeting its goals.

Collectively, charity sector employees were paid an estimated £1.47 billion less than their counterparts in the rest of the economy in 2019, assuming that people worked the average number of hours estimated in the Labour Force Survey. These comparatively lower wages affect the sector’s valuation because employee compensation is a key component of how Gross Valued Added (GVA – a key measure of sector productivity) is calculated. If employees are being paid comparatively less for undertaking the same type of work in the charity sector as roles in the rest of the economy, then their work in the charity sector is being undervalued.