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Employers Are Violating Wage Laws, and It's Costing Low Wage Workers $40 Million Per Week (orig)

January 30, 2011
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The U.S. Department of Labor (DOL) released a report earlier this month on the economic impact of wage violations involving low wage workers in California and New York.  The results, which David Weil of the DOL called "alarming", reveal that approximately $40 million in wages are lost weekly in those two states due to failure to pay workers.  The wage violations include not paying workers the minimum wage, or not paying them for all hours worked.  The service and hospitality sectors had particularly high rates of wage violations, as did sales positions. The study, which tracked data from 2011, provides that between 3.5% and 6.5% of all workers in California and New York had experienced wage theft. Among low wage workers, the numbers increase to 10.9% and 19.5%, respectively.  That means that 1 in 5 of New York's workers earning at or near minimum wage are not being paid in compliance with wage laws.

The Economic Impact

While the immediate impact of wage theft is workers' loss of income, DOL also analyzed the greater economic impact of not paying low wage workers properly.  DOL estimates that an additional 15,000 families were forced below the poverty line due to wage theft in 2011. Since a full time employee who works at the federal minimum wage rate of $7.25 earns about $15,000.00 annually, every dollar earned but not paid truly counts. DOL reported that low wage workers who aren't paid proper wages are forced to rely on government benefits to make ends meet.  Among the social welfare programs that low wage workers who have experienced wage theft turn to are:

  • Supplemental Nutrition Assistance Program (SNAP), often referred to as food stamps
  • The Special Supplemental Nutrition Program for Women, Infants and Children (WIC)
  • free or reduced school breakfast and lunch
  • Medicaid health insurance

In addition, wage theft resulted in $133 million lost in annual federal tax revenue.  At the same time that individuals are seeking public assistance in greater numbers due to wage theft, the government is collecting less tax money to fund these programs.

Protecting Vulnerable Workers

While the DOL study did not provide details as to why low wage workers experience more wage theft, several factors are likely at play.  For example, workers earning minimum wage may not be aware of wage laws that are in place to protect employees and ensure a minimum wage.  Even if they are aware, the fear of losing a job and having no income is enough to keep some workers from complaining about wage violations.

Despite the risks involved, some workers choose to report wage violations to the DOL. The agency reports that it has recovered $1 billion in lost wages for workers since 2009.  In addition, as we previously reported, wage & hour lawsuits have increased by approximately 250% over the last decade. It appears that for now workers are seeking to retroactively recover lost wages through complaints with DOL or litigation.

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