May 10, 2017 – A new paper by EPI Senior Economic Analyst David Cooper and Research Assistant Teresa Kroeger finds that employers steal billions of dollars from American workers’ paychecks each year, causing harm for working families, taxpayers, and the U.S. economy.
While wage theft is difficult to measure and can occur in many forms, this report assesses one straightforward, identifiable type of wage theft: workers being paid less than the minimum wage. Using Current Population Survey data, the authors analyze minimum wage violations in the 10 largest U.S. states, finding that nearly one fifth of low-wage workers in these states are being cheated by their employers.
In these 10 states—California, Florida, Georgia, Illinois, Michigan, New York, North Carolina, Ohio, Pennsylvania, and Texas—2.4 million workers lose $8 billion annually from being paid at an effective hourly rate lower than the states’ minimum wage. Because the workforce in these states accounts for 53 percent of total U.S. employment, these findings suggest that employers across the country are pocketing over $15 billion each year that is owed to their employees.
On average, workers suffering minimum wage violations are cheated out of $64 a week—$3,300 annually for year-round workers. These workers lose almost one-quarter of their earnings, receiving, on average, only $10,500 in annual wages.
Young people, women, people of color, and immigrant workers are more likely than other workers to report being paid less than the minimum wage, because they are more likely to work in low-wage jobs. However, minimum wage violations hurt low-wage workers across demographic categories.
“Wage theft hurts vulnerable working people who are not paid fairly for their efforts,” said Cooper. Cooper noted that in addition to hurting working people, taxpayers are also hurt by wage theft. “Many of the victims are forced to rely on taxpayer-funded public assistance programs. Our tax dollars are picking up the slack for wage thieves.”
This loss of income also weakens consumer demand. Low-income households typically spend every dollar of income that they receive in order to make ends meet. In contrast, corporations and business owners are likely to save a larger portion of their income. When employers steal from workers in low-income households, it leaves them with less money to spend in their local communities, leading to a net loss in consumer demand.
Unfortunately, action by the Trump administration has thwarted federal efforts to crack down on wage theft. President Trump recently signed a resolution repealing the Fair Pay and Safe Workplaces rule, which would have allowed federal contracting offices to consider records of labor law violations—including wage theft—when evaluating bids for federal contracts. The Trump administration’s actions mean that there is no system to ensure that federal contracts—payed for with taxpayer dollars—are not awarded to businesses that steal from their workers. This makes state efforts to combat wage theft all the more critical.
“Wage theft is a pervasive problem, and there are things we can do to prevent it,” said Kroeger. “Strengthening states’ legal protections against wage theft, increasing penalties for violators, bolstering enforcement capacities, protecting workers from retaliation, and increase collective bargaining rights will all hold employers accountable and put more money in working people’s pockets. Congress could also pass a law to re-establish the Fair Pay and Safe Workplaces rule.”