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Wage Theft Costing Low-Income Workers Billions

Wage theft is costing low-income workers billions of dollars, and the problem may be getting worse, a new study says.

Wage theft is costing low-income workers billions of dollars, and the problem may be getting worse, a new study says. Scott Olson / Getty Images

Americans toiling away in low-wage jobs already struggle to earn a living, and a new report says these meager paychecks are winnowed down by wage theft with alarming regularity.

Nearly $1 billion was recovered in 2012 by lawyers or regulatory agencies acting on behalf of workers who were paid below minimum wage, not paid for overtime or other wage and hour violations, according to a first-time analysis conducted by the left-leaning Economic Policy Institute. And the problem is growing, EPI analysts say.

Labor experts say they’re not surprised. “It seems likely that the recession would have intensified this problem,” said Ruth Milkman, a professor of sociology at the City University of New York Graduate Center.

Milkman was one of the authors of a 2009 study of low-wage workers in New York, Chicago and Los Angeles. About a quarter of workers surveyed said they had been paid below minimum wage within the last week. Three-quarters of those who worked more than 40 hours a week weren’t paid overtime.

“There’s been some increased effort to try and address this issue,” Milkman said. “Even with the increased enforcement, we found incredibly high violation rates at the bottom of the labor market.”

Even with these efforts by lawmakers and labor groups, “I think wage theft is increasing,” said Ross Eisenbrey, vice president at EPI and one of the authors of the new study. “There really is not much state local or federal enforcement going on, particularly in the low-wage industries where you’re not going to get attorneys to bring those cases.”

“The money recovered is just the tip of the iceberg,” said Tsedeye Gebreselassie, a senior staff attorney at the National Employment Law Project. The EPI report says if the 2009 study were extrapolated to the entire country’s low-wage labor market, wage theft could cost workers more than $50 billion every year.

“Resolving these wage theft complaints really relies on workers coming forward,” Gebreselassie says. Labor unions traditionally have acted as watchdogs for these kinds of violations, but they are largely out of the picture in today’s lowest-paying industries. This puts the onus on workers and advocacy groups to get the government’s attention, which isn’t easy.

Middle class taking on water 6:00

'Determined and Prolonged Effort'

“It requires determined and often prolonged efforts for workers or their representatives to bring violations to the attention of the attention of enforcement authorities,” Gary Burtless, a labor economist at the Brookings Institution, said via email.

Rooting out pay violators "has always been challenging," the Department of Labor’s Wage and Hour Division administrator, Dr. David Weil, said via email. "There are always fewer resources available than we would like to achieve our goals,” he said.

The division submitted a Congressional Budget Justification for the next fiscal year requesting an additional 300 investigators, arguing that changes like increased outsourcing and subcontracting have made the enforcement process harder. "Changes in the 21st century workplace present even greater challenges to making sure that workers are paid what they have rightly earned," Weil said.

Although wage theft takes place across the labor market, including white-collar industries like financial services and insurance, low-wage workers shoulder a disproportionate share of the burden, advocates say. Included in the $250 million in back wages secured by the Labor Department’s Wage and Hour Division in fiscal year 2013 was $83 million in wages for workers in low-wage industries.

The smaller dollar amounts of the violations make private litigation less lucrative, but they also take on more significance for families already teetering on the financial edge. People desperate for work might keep silent for fear of being fired or other retaliation, Burtless said, and workers might not know their rights or where to turn for help, particularly if they are immigrants or undocumented.

“The other thing that’s tricky is there’s so much subcontracting in these industries,” Milkman said. “In many of those cases, we discovered that sometimes the workers were confused about who their employer was,” which means an employee being cheated on pay might not know who to report.

Wage theft can take many forms; overtime violations are common, along with minimum wage violations, since other types of violations can result in a worker being cheated out of overtime pay or being paid the equivalent of less than minimum wage.

Paychecks That Bounce

In some cases, a worker might be paid a flat fee for the day or the week. Sometimes, workers are told to clean or perform other duties before they punch in or after they punch out. Other instances involve employers denying breaks that are required by law. And in some cases, workers just aren’t paid, or they’re paid checks that bounce.

Arne Kalleberg, a professor of sociology at the University of North Carolina Chapel Hill, said enforcing the rules is a challenge because there are so few people at federal and state regulatory bodies tasked with addressing the issue.

“The number of inspectors is woefully small compared to the scale of the problem,” he said. “We don’t need new laws so much as enforcement of the ones we’ve already got.”

While wage-and-hour class-action settlements at big companies grab headlines, wage theft takes place at small companies at about twice as often, Milkman said. Big companies take a greater risk that worker pay violations could hurt their reputation and create a public relations headache. Also, there are many more small businesses in the country, and it’s easier for an unscrupulous restaurateur or contractor to fly under the radar and reestablish their business under a new name after fleecing employees.

“Even after they get a finding of liability… many of these workers work for fly-by-night individuals who just close up shop and disappear,” Gebreselassie said.