This article focuses on the impact of ethnic background on employment and earnings among people with a vocational education in Norway. I differentiate between three different groups: majority, first-generation non-Westerners and second-generation non-Westerners. Panel data from several public register databases of the entire population of graduates from Norwegian vocational schools from 1997 to 2001 (N = 54,453) are used. The aim of this article is to uncover ethnic inequality in the labour market among vocational graduates and try to understand these differences. By using multi-level linear and logistic regression analysis methods it is shown that the majority have significantly higher earnings than the first- and second-generation non-western ethnic minorities; however, the earning gap is closing with time since graduation. The analyses also show that the ethnic differences in earnings are minor when we compare individuals who are fully employed. Results for employment show that the first-generation non-western minorities have a lower probability for full employment as compared to the majority, but the second-generation minorities experience only a minor disadvantage. Finally, I found that the disparity in annual earnings between the first-generation non-western minorities and the majority increases with increasing non-western ethnic concentration and unemployment rate in local labour markets. (Contains 2 tables, 4 figures and 6 notes.)