How workers get stiffed out of pay

In the September 3, 2009 U.S. News & World Report article
"How the Lowest-Paid Workers Get Ripped Off," Liz Wolgemuth reports that employers are cheating some workers out of wages they legally earned. Regulation is sometimes needed to improve market outcomes when the marketplace fails to provide socially desirable ones.

In large cities like Chicago, Los Angeles, and New York, there's a good chance that the employee mopping up drips at the car wash, the delivery driver at the nearby gourmet grocery store, and the temp worker hired to do janitorial work are not being paid much. It turns out, there's also a good chance they are not even being paid what they've earned.

According to a new study, the average low-wage urban worker earning $339 a week is cheated out of $51 of that amount by an employer committing one or more workplace violations--such as paying less than minimum wage, refusing overtime pay, requiring off-the-clock work, or preventing workers compensation claims. Whether damning proof of the government's inability to adequately enforce labor laws or evidence of a need for stronger standards, the report offers insight into the working lives of an often under-the-radar demographic.

The study, funded by the Joyce, Haynes, Ford, and Russell Sage foundations, is based on interviews with 4,387 low-income workers--39 percent unauthorized immigrants, 31 percent authorized immigrants, and 30 percent U.S.-born citizens--in the first half of 2008. The median hourly wage for workers surveyed was $8.02, and the workers were in a wide variety of industries, including manufacturing, construction, food service, and child care. Employing a method that uses social networks to recruit participants, the study focused on workers who tend to be the most difficult to survey. The questions asked were aimed at gaining accurate information about employer policies from workers who might not understand the law, and surveys were translated into languages that included Hindi, Urdu, Bengali, Polish, and Haitian Creole.

More than two thirds of the workers surveyed had experienced at least one pay-related violation within the previous workweek, according to the study. Nearly a quarter worked off the clock and were rarely paid for it. And 76 percent of workers who had worked overtime were not paid the overtime rate, as required by law. More than two thirds of workers entitled to lunch breaks had either not received them, had them shortened, had been interrupted, or continued to work through their break.

More violations were found in certain industries than in others. Minimum wage violations were most common in apparel and textile manufacturing, personal and repair services, and in private households. Violations were lower in residential construction, social assistance and education, and home healthcare. Employees of businesses with more than 100 employees experienced violations less often than those who worked at smaller businesses.

Study coauthor Ruth Milkman, a sociologist at University of California-Los Angeles, says the study results provide convincing evidence that the enforcement of labor laws has been very limited. "In that segment of the labor market, it also appears that employers have realized that enforcement is extremely unlikely and they can do this stuff without much fear of consequences," Milkman says.

It's not clear how violations affecting low-wage workers compare with those who are paid more. Milkman suspects that overtime violations extend to groups of higher-earning workers. The researchers found that women, immigrants, and people of color were disproportionately more likely to experience a violation. Three quarters of the workers surveyed had a high school degree or less. Foreign-born workers were nearly twice as likely to experience minimum wage violations, and foreign-born Latino workers had the highest minimum wage violation rates of any ethnic or racial groups.

The study's authors argue that "the best inoculation against workplace violations is ensuring that workers know their rights, have full status under the law to assert them, have access to sufficient legal resources, and do not fear retaliation." This is, they point out, a near impossibility for unauthorized immigrant workers. "Any policy initiative to reduce workplace violations must prioritize equal protection and equal status in national immigration reform, and ensure status-blind enforcement of employment and labor laws," they write.

In the existing labor market, employers who hire illegal immigrants benefit from an unnatural balance of power, since undocumented workers have little leverage with employers who violate the regulations of the formal labor market, says Will Wilkinson of the Cato Institute. He believes there needs to be much greater integration in the labor market in North America and policies that give undocumented immigrants the status to live and work here.

According to the New York Times, Labor Secretary Hilda Solis said her department was hiring 250 additional wage-and-hour inspectors. But greater enforcement of the existing workplace standards could complicate the route to employment for many illegal immigrants because they often rely on jobs that are below minimum wage as entry points in the U.S. job market and use those jobs to gain the skills to reach higher pay levels, Wilkinson says.

Milkman tells of interviewing a hotel worker whose supervisor would enter hotel rooms before her and take the tips that had been left for her. The worker also was required to work more hours than she was paid for. When she complained, she was essentially fired--told her services were no longer needed.