Combating Wage Theft under Donald Trump

AP Photo/Mary Altaffer, File

McDonald's employees serve a meal containing a large soda, in New York.

In what has become something of an annual ritual, the Department of Labor recently announced that an investigation of the garment industry in Southern California uncovered rampant wage theft.

Eighty-five percent of inspected garment contractors had violated wage-and-hour laws, with the most offenses committed by contractors sewing garments for Ross Dress for Less, Forever 21, and TJ Maxx. Workers were found to be earning well below the minimum wage, as little as $3 an hour. Some were paid six cents per piece of clothing while they worked in sweatshop conditions. Adjusted for inflation, these wages are comparable to what the Triangle Shirtwaist Factory workers made in 1911. The Department will collect $1.3 million in back wages for these exploited workers.

Such investigations can't root out all violations, of course. But under Labor Secretary Tom Perez and Wage and Hour Division Administrator David Weil, the federal agency has used strategic, targeted investigations like this one to great effect. The department has gone after subcontracters, franchises, and supply chain structures to send ripple effects throughout entire industries. Since 2009, it has recovered $1.6 billion in workers’ back wages. In 2015, it recovered an average of $700,000 every day, which the Wage and Hour Division explains is “enough for more than 3,600 working families to buy a week’s groceries.”

Unfortunately, all that progress is likely to grind to a halt under a Trump administration.

By choosing Andrew Puzder, CEO of fast-food giant CKE Restaurants, as his labor secretary, Trump has signaled to employers that the days of proactive law enforcement to protect our most vulnerable employees will soon come to an end.

Puzder has publicly opposed California’s minimum wage increase, called for loosening many of the regulations he would be responsible for enforcing, and wrote an op-ed last May in Forbes arguing that employees earning between $23,660 and $47,500 a year should not become eligible for overtime pay, as that would erect a “barrier to the middle class.” His company, which runs Hardee’s and Carl’s Jr. fast-food chains, has been named in multiple class-action lawsuits for wage violations.

Puzder’s appointment suggests that Trump’s Labor Department is likely to revert to its old ways under George W. Bush, when it was lambasted by the Government Accountability Office for “sluggish response times, a poor complaint intake process, and failed conciliation attempts” and for leaving “thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn.”

Which raises the question: where should exploited workers turn under Donald Trump?

With private sector labor union membership down to about 6.5 percent, precious few workers will be able to take advantage of union representation and redress through mediation or arbitration.

The vast majority of workers will have no defense other than state, county, and municipal-level laws. Most states and localities have their own employment laws on the books, but the majority of these are weak, and their labor departments toothless. These laws can and should be strengthened.

Of course, political conditions will not be particularly favorable for progressive policy change. Only six states (and Washington, D.C.) will be controlled by Democrats. Two-thirds of the biggest cities will have Democratic mayors, though, and may be amenable to passing more protective legislation and enforcing workers’ rights.

Workers and their advocates will simply have to push for progressive policy change wherever and whenever they can.

But it’s not a fool’s errand. In my research, I have found that simply increasing the penalties for wage violations—even in the absence of strategic enforcement by regulators—can by itself reduce the incidence of wage theft.

Wage Theft Widespread

Wage theft—when employers fail to pay their employees the full amount they’ve earned and to which they’re legally entitled—is more pervasive and pernicious than most people realize.

Most wage violations remain hidden, because many workers fear job loss, deportation, or abuse if they complain. Some cases have been brought to light through DOL investigations, lawsuits brought by determined attorneys general like Eric Schneiderman of New York, and strategic enforcement partnerships like those pioneered by Labor Commissioner Julie Su in California. Journalists have helped raise awareness as well.

New York Times exposé of the nail salon industry in New York City, for example, revealed that new employees—usually undocumented immigrants—were often required to pay $100 for the opportunity to work, forced to “train” for weeks without pay, and then paid as little as $30 a day for 12-hour days, six or seven days a week, all in violation of federal and state minimum wage and overtime laws.

Almost everything else we know about the problem comes from academic surveys and studies. The most widely cited study, conducted back in 2008, surveyed 4,387 hard-to-reach low-wage workers in New York, Chicago, and Los Angeles and found that 26 percent of low-wage workers had been paid less than the minimum wage in the previous week, with 60 percent underpaid by more than $1 per hour. More than three quarters of those who worked over 40 hours did not receive any overtime pay.

My own recent research, published in Perspectives in Politics this past June, used Current Population Survey (CPS) data to generate estimates of minimum wage violations across all 50 states between 2005 and 2013. Circumventing the problems associated with complaint-based and employer-reported data, the CPS data enable us to capture trends in wages and hours that would otherwise be invisible.

I found that between 2005 and 2013, about 16 percent of low-wage workers were paid less than their state’s legal minimum wage each year. In 2013, for example, these victims of wage theft worked an average of 32 hours per week and earned an hourly wage of only $5.92.

These were not just paycheck rounding errors or a few lost tips. Had these workers earned their applicable minimum wage, they would have received an average hourly wage of $7.68, which means they were cheated out of 23 percent of their income ($1.76 per hour) on average. While an estimated income loss of 23 percent may seem high, it is actually toward the lower end of other published estimates.

The CPS data don’t tell us how employers withheld the wages. But we know that employers often commit wage theft by mandating off-the-clock work, paying their employees a flat rate irrespective of hours worked, making illegal deductions, withholding tips, misclassifying their employees as exempt, or simply refusing to pay for work performed.

Minimum wage violations are not the most expensive type of wage theft—overtime violations or misclassifications probably are—but they disproportionately affect our most vulnerable workers in society: immigrants, people of color, less educated workers, younger workers, women, and other workers who can least afford to be underpaid.

When low-wage workers are cheated out of even a small percentage of their income, it can mean major hardships—like being unable to pay for rent or child care, or put food on the table. Such violations also contribute to widening income inequality, wage stagnation, and chronically slow growth in living standards.

What to do?

Strengthening employment laws at the state and municipal levels can help remedy these problems, and workers and their advocates should continue to direct their attention there. States vary widely in their regulations, penalties, and enforcement abilities, however, and there is no one-size-fits-all solution. But I have found that simply increasing the penalties for wage violations can go quite a ways.

In states with the toughest penalties for unscrupulous employers, workers had significantly lower probabilities of facing wage theft than comparable workers in states with weaker statutes (holding constant demographic, economic, and other factors).

For example, the probability that a low-wage worker would suffer a minimum wage violation in a state like Massachusetts or New Mexico (with some of the strongest employment laws in the country) was about 14 percent, while a comparable worker in Virginia (with some of the weakest) had about a 22 percent probability of experiencing wage theft, all else equal.

We can get an even better picture of the laws’ impact by looking at the violation rate before and after policy changes. Between 2006-2013, a dozen states (Arizona, California, Illinois, Iowa, Maryland, Massachusetts, New Mexico, New York, Ohio, Rhode Island, Texas, and Washington) passed new statutes heralded as significant anti-wage theft laws.

Among the different mechanisms chosen to combat wage theft, I found that only one type of reform was associated with significant declines in the probability of wage theft: the introduction of treble damages (three times the back wages owed) in wage violation cases. Those laws were enacted in Arizona, Massachusetts, New Mexico, Ohio, and Rhode Island.

The remaining seven states introduced more modest penalty increases (Iowa, New York, and Texas), new small-claims administrative processes (Illinois and Maryland), and failure-to-pay-up penalties (Washington and California). But none of those reforms reduced the incidence of wage theft after the laws were passed.

Another lesson to draw from these cases is that political conditions matter a lot—most of all, which party is in power. In nine of the 12 states that enacted stronger laws, Democrats controlled both houses of the legislature and the governorship. Two of the laws were passed via ballot initiatives (Arizona and Ohio); and only one was enacted under Republican control (closing Texas’s “Theft of Service” law loophole).

Just as important for the bills’ success were the protests and persistent lobbying by progressive coalitions made up of workers’ advocacy groups (“alt-labor”), traditional labor unions, legal advocates, and business groups seeking to level the playing field.

Working with sympathetic Democratic legislators, these broad coalitions overcame the strenuous opposition of right-wing groups and Republican lawmakers to bolster their states’ capacity to defend workers’ rights.

To combat wage theft, in other words, workers’ advocates have usually needed to hit the trifecta: unified Democratic government, a broad coalition of politically deft advocacy groups, and a policy design that actually deters wage theft.

At the national level, Democrats introduced well-crafted legislation last session to amend the Fair Labor Standards Act and make treble damages available to workers, but it will be many years before such legislation gets a fair hearing in Congress. In the meantime, the main action will continue to take place at the state and local levels.

There, workers’ rights advocates will need to build coalitions, develop policy proposals to strengthen state and local laws, and work with Democratic politicians, both to help build Democratic majorities and to enjoy good working relations when the opportunity to enact stronger legislation arises.

After the 2016 elections, Republicans will control both legislative chambers in 32 states—the most ever for the GOP. Democrats will control both chambers in 13 states, but only 6 of those states also has a Democratic governor.

Thirty-three of the nation’s 51 biggest cities, however, have Democratic mayors, which suggests that reform may be more possible at the municipal level (in states where Republican legislators haven’t already passed preemption laws in anticipation of local efforts to protect workers).

In Chicago, for example, a coalition of workers’ advocates led by Arise Chicago collaborated with supportive aldermen and a Democratic mayor to pass a strong anti-wage theft ordinance in 2013, which revoked the business licenses of those found guilty of wage theft. In 2015, an even broader coalition got a similar ordinance passed at the county level. With a Republican governor in power, state-level policymaking has ground to a halt and the state labor department’s enforcement capacity has been badly diminished. But by focusing on the enactment of stronger public policies at the city and county levels, millions of workers will see real benefits.

The same formula, applied elsewhere, could provide much-needed help to workers during a Trump administration.

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