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  February 23, 2018

Employers Steal $15B From Low Wage Workers Each Year

Millions of workers are paid less than the minimum wage, thanks to the erosion of federal labor protections, says David Cooper of Economic Policy Institute
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David Cooper is a Senior Economic Analyst & Deputy Director of EARN. David conducts both national and state-level research, with a focus on the minimum wage, wage theft, employment and unemployment, poverty, and wage and income trends. He also coordinates and provides technical support to the Economic Analysis and Research Network (EARN), a national network of over 60 state-level policy research and advocacy organizations.


SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries coming to you from Baltimore. Wage theft, especially from lack of enforcement of minimum wage laws, continue to be a serious problem in the US, and is likely to get worse under the Trump administration. According to research conducted by the Economic Policy Institute, up to $15 billion worth of wages are owed annually to minimum wage workers across the United States. Companies often engage in wage theft simply because they know they can get away with it. 36 states have only 10 or fewer wage theft investigators and the Department of Labor only takes on particularly egregious cases of wage theft, creating a real problem in this country in terms of what people are owed and what they actually take home.

So, joining me to take a closer look today at this issue of wage theft is Dave Cooper. He is a senior economic analyst at the Economic Policy Institute and co-author of the 2017 study titled, Employers steal billions from workers' paychecks each year. Thanks for joining us, Dave.

DAVE COOPER: Thanks for having me.

SHARMINI PERIES: So, Dave, let's start off with you describing some of the worst forms of wage theft that people experience.

DAVE COOPER: Sure. So, wage theft can occur in a variety of different forms. It can be everything from a worker not being paid for all the hours that they’ve worked, to workers not getting overtime for working more than 40 hours per week, someone getting paid less than the minimum wage, even things like illegal deduction from folks' paychecks or not getting meal breaks.

The really egregious cases are when folks don't get paid at all and believe or not, that happens more frequently than we certainly would like, particularly in certain industries where there's a lot of use of, for example, immigrant labor or sub-contractors who may not be paid, not just for all the hours that that they work, but some of them don't actually even get any of the money that they're owed.

SHARMINI PERIES: Why are low wage workers or minimum wage workers affected more by this kind of wage theft?

DAVE COOPER: Well, in some ways it's just a function of where they are in the wage scale. The fact that a lot of these workers are working either at or close to the minimum wage, makes them more susceptible to those minimum wage violations, because if they're not paid for all the hours that they work, then their hourly rate just sort of mathematically is falling below the minimum wage and their employer as such is not paying them enough.

But at the same time, a lot of workers who are low-wage workers are particularly vulnerable group folks, like teenagers and young people, women, people of color and, as I mentioned earlier, immigrant workers. These are folks that may have a harder time speaking up when their rights are being violated.

SHARMINI PERIES: In my introduction, I said that wage theft might get worse under the Trump administration, and one reason for this is that last December the Department of Labor reversed an Obama administration decision to hold large companies and their franchises jointly responsible for wage theft. In other words large companies, say like McDonald's, can once again claim that their franchises are responsible for wage theft and not the main company. What are your thoughts on this policy change and how big a problem do you expect it to be?

DAVE COOPER: Well, it's a huge problem. It was already a huge problem even before the Trump administration took this action. In many cases, if a worker wants to try and fight for the wages that they're owed, they don't even know who their direct employer is, because, as I said before, they may be contracted and if they try and go to the person that's contracting them to get the pay that they're owed, that person then just defers and says, "Well, no. It was this parent company."

It's the same thing that's happening with these franchises. The workers try to go after the parent company, like a McDonald's, to pay them the wages that they're owed and McDonald's is able to pass the buck to the franchisor. As a result of this Trump administration decision, it's just going to make it even harder for workers to get those wages.

SHARMINI PERIES: Now, your study, Dave, estimated that up to $15 billion are stolen annually from minimum wage workers. How did you come up with this estimate? And in what industries and demographic groups does this happen the most?

DAVE COOPER: Yeah. Well, first let me say that our estimate of $15 billion annually is a conservative estimate. The way we came up with it is we looked at wage theft, or specifically minimum wage violation in just the 10 most populous states in the country, and the reason we looked at just those 10 states is because to do an analysis like this, we have to take into account every state's individual wage law, because believe it or not, not all workers are actually entitled to minimum wage under Federal law and under State law. The exemptions change dramatically from state to state.

But once we accounted for all those exemptions, we looked at those 10 states and we just calculated how many workers were reporting getting paid amounts that fell below the minimum wage. When you looked at the minimum wage in that state and the hours that they reported working, we estimated that about 2.4 million workers in those states were losing about $8 billion annually as a result of wage theft. And because the workforce in those 10 states accounts for a little more than half the total US workforce, we can then extrapolate from that and say that nationwide, it's probably at least $15 billion that's been stolen from these workers.

As I said before, that's a conservative estimate because in the states that we were looking at, these are bigger states, but a lot of them are also states that have a little bit better enforcement capacity, places like California and New York who are taking actions to fight this. A lot of the states that we weren't able to include in our study are states in the south that have no enforcement capability or don't bother to look into these things whatsoever. So, it stands to reason that violations are going to be even worse in a lot of those states than the ones we were looking at.

To your point about who this affects the most, when we look at the workers were suffering these violations, it tends to be some of the most vulnerable groups of workers, a lot of young people, predominantly people of color, oftentimes immigrant workers and women suffer greater violations than men. In some ways, these higher rates of violations among these groups are a function of the fact that these groups unfortunately are more likely to be low wage workers to begin with, which just really means that this is a problem for workers overall. It's not just these groups that should be concerned about this.

SHARMINI PERIES: Dave, tell us about this new rule change that was introduced, in terms of tip wages and sharing the tips with the owners, and so on. What is that rule change about and how is it going to affect workers?

DAVE COOPER: Yeah, so this is actually a rule change that was proposed by the Trump administration Department of Labor, and what the rule change would do is overturn an Obama administration policy which said that when a worker received tips, that those tips are the property of that worker, unless they choose voluntarily to share that, to put it in a tip pool with some of their colleagues.

What the Trump administration is proposing is to say that as long as those workers are paid at least the minimum wage by their employer, that any tips they receive become the property of the house, they become the property of the restaurant, and the restaurant can do what they want with them. Now, the administration is saying that this rule will be important because it will allow restaurants to include back of the house workers, like cooks and dishwashers, in the tip pool. So, ostensibly giving those workers a little additional income from tips.

But what's interesting is that the administration doesn't actually require restaurants to do that. They say that the restaurants can do whatever they want with that money. So, it stands to reason that if the restaurants are already able to fill those jobs with the wages they are currently paying, there's no incentive for them to actually share any of that money with the back of the house, and even if they do, they might just lower those back of the house workers' base pay because now they're including them in the tip pool.

Basically, this is a huge giveaway for restaurants, so the National Restaurant Association has been lobbying for this for a long time. And we, at the Economic Policy Institute, have estimated that this would probably lead to a transfer of about $5.6 billion in tips from waiters, waitresses and bartenders to restaurant owners.

SHARMINI PERIES: That's incredible, Dave. So, what needs to happen for wage theft to be prevented as much as possible to protect the workers and their wages? I mean, everyone listening to this story is going to be asking what can we do about it? So, what should workers be doing about it?

DAVE COOPER: Well, first of all they should be speaking up. If their rights are being violated, they need to speak up. They need to go to whatever enforcement agency is available, go to a union if they're lucky enough to have one, go to a worker's center if they can get in touch with someone there or go to an attorney to try and get their claims processed.

But really, to fight this more broadly, there's a number of things we need to do. The first one is we just need to increase transparency because one of the biggest problems in fighting cases of wage theft is that workers don't actually have the documentation required to fight the claim. In a lot of states, employers are not even required to provide payslips. So, the first thing we need is legislation in every state that requires that workers get a pay stub that shows the hours that they work, the wage that they should've been paid and any deductions from their pay.

The second thing we need is just greater enforcement. We need stricter penalties when employers violate these laws, and we need resources for state and federal investigative authorities that they actually have the resources to hire investigators, and get those investigators out investigating these claims.

And finally, the last thing is we need to protect workers' ability to enter into class action suits whenever their rights are being violated. Unfortunately, another problem that's been happening is a lot of workers are being forced to sign contracts that waive their rights to enter into class action suits in the event that their wages are being stolen. And that's another pernicious problem that we have to deal with if we're going to improve chances for workers to get what they're owed.

SHARMINI PERIES: All right, Dave. I thank you so much for the report you've written, as well as for this interview. We'll try to put a link to the study just below the player for those who want to explore this issue further. And thank you for joining us today.

DAVE COOPER: Wonderful. Thanks for having me.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.


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