Study: Wage Theft Runs Rampant During Recessions

Strategic enforcement is needed to protect workers in high-violation industries

Newswise — PISCATAWAY, N.J. – Low-wage workers face an elevated risk of wage theft during periods of high unemployment, according to study led by Rutgers University’s Center for Innovation in Worker Organization (CIWO) and published today by the Washington Center for Equitable Growth. Researchers found a strong relationship between unemployment levels and minimum wage violation rates during the Great Recession of 2008. It’s likely to be even worse this year due to higher job loss numbers, budget cuts at the state level, and President Trump’s executive order relaxing labor standards enforcement. 

“We know that low wage-workers who care for our elders and our children, harvest our crops, and process our meat, cook our to-go orders, staff our factories and warehouses, stock our shelves, and clean our homes and hospitals are literally risking their lives for us during this pandemic,” said Janice Fine, a professor in the Rutgers School of Management and Labor Relations and director of research and strategy for Rutgers CIWO. “What this study of the Great Recession tells us is that there is a strong likelihood that many—particularly women, immigrants, Latinx and Black workers—won’t even be paid the paltry wages they are owed.” 

A multidisciplinary research team analyzed federal data to estimate minimum wage violations during the Great Recession. For each percentage point increase in a state’s unemployment rate, there was almost a full percentage point increase in the probability that a worker would experience a minimum wage violation. The study also found: 

  • The probability that a low-wage worker would be paid below the minimum wage ranged from about 10% to 22%, depending on the state’s unemployment rate.
  • On average, workers lost 20% of their hourly wage.
  • Non-citizens were 114% more likely than citizens to have their rights violated.
  • Latinx workers were 84% more likely, and Black workers were 41% more likely, than white workers to experience a minimum wage violation.
  • Women were 43% more likely than men to experience a violation.
  • Latinx and Black women who were not U.S. citizens faced the highest probability of minimum wage violations.
  • Worker power matters. Unionized workers were more than three times less likely to experience a minimum wage violation.

The U.S. Department of Labor recently began implementing President Trump’s executive order “requiring the Department to continue removing… regulatory and enforcement barriers to economic prosperity as America strives to defeat the economic effects of COVID-19.” The researchers believe this action will weaken minimum wage enforcement at the federal level, and cash-strapped state and local governments may be unable to fill the gap.

An enforcement void not only harms workers, but it undermines the competitiveness of compliant business owners who may be scraping by without resorting to wage theft. Unfair competition can weaken the entire wage structure in an industry and a city.

“Relaxing labor standards enforcement during a recession is like creating a perfect storm for worker exploitation,” said Daniel Galvin, a Rutgers CIWO fellow and associate professor of political science at Northwestern University. “Employers shouldn’t be allowed to shift their higher costs onto the backs of the low-wage workers who can least afford to be underpaid. That’s why government has such an important role to play, especially during a recession, when low-wage workers need protection the most.”

In a related study, Rutgers CIWO analyzed minimum wage complaints and compliance in San Francisco between 2005 and 2018 and discovered thousands of workers did not come forward when they were paid below the minimum wage. Domestic workers were the biggest victims, with an estimated 5,098 violations and only 4 complaints for every 10,000 workers. Strategic enforcement, which proactively targets resources to high-violation industries, would prevent these workers from falling through the cracks.

“In a recession when an exploitative job is better than no job, we cannot wait for workers to complain to enforcement agencies before we act,” said Jenn Round, a Rutgers CIWO fellow and labor standards law expert. “We need robust strategic enforcement efforts in partnership with community-based organizations that are embedded in low-wage worker communities and high-violation sectors. Such an approach will better maximize enforcement resources, which is critical as governments at all levels face substantial revenue losses and budget deficits.”

In addition to strategic enforcement, the study makes these recommendations: 

  • Strengthen retaliation protection: If a worker is fired or has their hours cut within 90 days of reporting a wage theft violation, agencies should presume the employer is retaliating and should require clear and convincing evidence to prove otherwise.
  • Maximize deterrence: Increase damages, fines, and penalties for employers who commit minimum wage violations.
  • Extend the statute of limitations: Employees should have the right to recover full wages up to six years after a violation.
  • Stand up to sub-contractors: Federal law should incorporate policies that hold up-the-chain entities strictly liable for downstream violations.
  • Stop misclassification: The Federal Labor Standards Act (FLSA) should be amended to crack down on employers who misclassify employees as independent contractors.
  • Allow representation: Amend the FLSA to allow unions, worker centers, community-based organizations, and nonprofit legal aid groups to represent workers in enforcement matters including filing complaints.
  • Promote co-enforcement: Establish a federal grant program to help community-based organizations partner with government agencies on strategic enforcement.

"Complaint-based enforcement assumes that workers know their legal protections, trust the system, and trust that their employer will not retaliate if they file a complaint,” said Hana Shepherd, assistant professor of sociology in the Rutgers School of Arts and Sciences. “Those assumptions just do not hold up, especially in a pandemic."

The Labor Standards Enforcement Toolbox

Rutgers CIWO and the Center for Law and Social Policy (CLASP) created a free online resource to help state and municipal agencies better protect workers. The toolbox includes briefs on complaints, intake, and triage; investigations; collections; strategic enforcement; addressing and preventing retaliation and immigration-based threats to workers; negotiations and settlement agreements; and sharing information with community organizations.

About the School

The Rutgers School of Management and Labor Relations (SMLR) is the world’s leading source of expertise on managing and representing workers, designing effective organizations, and building strong employment relationships. SMLR’s Center for Innovation in Worker Organization is a “think and do tank” that seeks to shift the balance of power toward greater economic and social equality.

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