Wage Theft by Employers is Costing U.S. Workers Billions of Dollars a Year

Rampant wage theft in the United States is a huge problem for struggling workers. Surveys reveal that the underpayment of owed wages can reduce affected workers’ income by 50 percent or more. Most recently, a careful study of minimum wage violations in New York and California in 2011 commissioned by the U.S. Department of Labor (DOL) determined that the affected employees’ lost weekly wages averaged 37–49 percent of their income. This wage theft drove between 15,000 and 67,000 families below the poverty line. Another 50,000–100,000 already impoverished families were driven deeper into poverty.

The extensive weekly minimum wage violations uncovered by the DOL study in California and New York alone amount to an estimated $1.6 billion–$2.5 billion over the course of a full year. Given that the combined population of California and New York is 18.5 percent of the U.S. total, it is reasonable to estimate that minimum wage violations nationwide amount to at least $8.6 billion a year, and as much as $13.8 billion a year. On the one hand, violations in these two states might be less frequent because the wage and hour enforcement effort in New York and California is greater than in most states and violations might be deterred (Florida, for example, does not have a state labor department). But on the other hand, their large immigrant populations might increase the prevalence of wage theft—the DOL study found that non-citizens were 1.6 to 3.1 times more likely to suffer from a minimum wage violation.

The DOL study vastly understates the total impact of wage theft because it reported only on minimum wage violations, which are more frequent than overtime violations but usually involve smaller per violation dollar amounts than many overtime pay violations. A bookkeeper, for example, earning an annual salary of $45,000, who works 10 hours of unpaid overtime a week might lose $325, whereas a minimum wage worker forced to work “off-the-clock” unpaid for 10 hours would lose “only” $72.50, or ten times the state minimum wage if it were higher than the federal minimum. (Overtime violations are very frequent among low wage workers: a 2009 study found that on a weekly basis, 19 percent of front-line workers in low wage industries were cheated out of overtime pay to which they were entitled.)

DOL’s new study shows the need for much greater efforts to ensure employer compliance. Helpfully, the president has called for increases in the budget and staffing of the Wage and Hour Division, but Congress should revisit the obsolete penalties for non-compliance: repeated or willful violations of the minimum wage and overtime requirements are subject to a maximum fine of only $1,100.

  • PIR8

    One of the first jobs I had in Alaska growing up was bagging groceries at the local supermarket (now Safeway). They had a timekeeping system, like dozens of others named Chronos after the greek god of time. They would routinely screw people by making them punch in and out, but not before their shift started, e.g. 8am-5pm shift you would punch in at 8:02, punch out at 12:05, punch in at 12:59 and punch out and 5:09.

    No matter what it always rounded in their favor in 15 minute intervals. So what should have been an 8 hour day was more like 7, and what should have been a 40 hour week was closer to 36. Ended up being a class action lawsuit. I’m sure lawyers got most of the money.

  • soc_sci anon

    Note that there are empirical studies of low wage workers (by sociologists, which I guess means that economists can ignore them) that have more direct measures of wage theft than the data used in this report. See, e.g., Spiller, Bernhardt, Milkman, etc from 3-4 years back.

  • oorang

    Wage theft is one of many mechanisms employers are using to ensure that they continue to be able to keep an astounding 44% of worker productivity as profits- http://politicsthatwork.com/graphs/division-of-productivity

  • kj

    So why would an employer even care with such a low penalty assessment? And we know that the conscience threshold of the average business owner when it comes to worker productivity sharing is questionable at best!