Study: Economic downturn leaves low-wage workers susceptible to wage theft

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Low-wage workers are more likely to experience wage theft during periods of high unemployment, according to a study led by Rutgers University’s Center for Innovation in Worker Organization and published Thursday by the Washington Center for Equitable Growth.

A strong relationship between unemployment levels and minimum wage violation rates noted by researchers to as occurring during the Great Recession will likely be even worse this year due to higher job loss numbers, budget cuts at the state level, and President Donald Trump’s executive order relaxing labor standards enforcement, researchers found.

“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, in a prepared statement. “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.”

Researchers analyzed federal data to estimate minimum wage violations during the Great Recession. Every percentage point a state’s unemployment rate went up, correlated with almost a full percentage point increase in the chances that a worker would experience a minimum wage violation.

The probability that a low-wage worker would be paid below the minimum wage ranged from about 10 percent to 22 percent, depending on the state’s unemployment rate. Workers lost 20 percent of their hourly rate, on average.

Certain populations were more susceptible to wage theft. Non-citizens were 114 percent more likely to experience wage theft than citizens, Latinx workers were 84 more likely, and Black workers were 41 percent more likely than white workers to experience a minimum wage violation.

Women were 43 percent more susceptible to wage theft than men.

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.

— Janice Fine; professor, Rutgers School of Management and Labor Relations; research and strategy director, Rutgers CIWO

Unionized workers, however, were more than three times less likely to experience a minimum wage violation than their non-unionized counterparts.

The U.S. Department of Labor recently began implementing 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 Rutgers researchers believe this action will weaken minimum wage enforcement at the federal level, and some state and local governments may be unable to fill the gap.

An enforcement void both harms workers and undermines the competitiveness of compliant business owners who may be scraping by without underpaying their workers, researchers found, leaving the potentiality to weaken the wage structure in an industry and a city as a whole.

“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, in a prepared statement.

“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,” Galvin said.

In a separate and related study, Rutgers CIWO analyzed minimum wage complaints and compliance in San Francisco between 2005 and 2018. They discovered that thousands of underpaid workers did not come forward. Domestic workers, for example, had an estimated 5,098 violations but only four complaints for every 10,000 workers.

“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, in a prepared statement. “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.”

The study recommends the government strengthen retaliation protection, so that if a worker is fired or has his or her hours cut within 90 days of reporting wage theft, agencies should presume the employer is retaliating and should require clear evidence to prove otherwise.

The researchers also recommend maximizing deterrence but increasing damages, fines and penalties for employers who commit minimum wage violations; extending the statute of limitations to six years; holding up-the-chain entities liable for downstream violations; cracking down on worker misclassification; allowing unions, worker centers, community-based organizations and nonprofit legal aid groups to represent workers in enforcement matters including filing complaints; and establishing 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, in a prepared statement. “Those assumptions just do not hold up, especially in a pandemic.”