Wage Theft

This is the executive summary of Unregulated Work in Chicago, April 2010.

This report exposes a world of work in which core employment and labor laws are failing significant numbers of workers. These protections - the right to be paid at least the minimum wage, the right to be paid for overtime hours, the right to take meal breaks, access to workers' compensation when injured, and the right to advocate for better working conditions - are being violated at alarming rates in the low-wage labor market.

The sheer breadth of the problem, spanning key industries in the economy, as well as its profound impact on workers and their communities, entailing significant economic hardship, demands urgent attention.

In 2008, along with our colleagues in Los Angeles and New York City, we conducted a landmark survey of 4,387 workers in low-wage industries, 1,140 of whom are employed in Chicago and suburban Cook County. We used an innovative, rigorous methodology that allowed us to reach vulnerable workers who are often missed in standard surveys, such as unauthorized immigrants and those paid in cash. Our goal was to obtain accurate and statistically representative estimates of the prevalence of workplace violations. All findings are adjusted to be representative of front-line workers (i.e. excluding managers, professional or technical workers) in low-wage industries - a population of about 310,205 workers employed in Cook County.

Finding 1: Workplace violations are severe and widespread in the low-wage labor market We found that employment and labor laws are regularly and systematically violated, impacting a significant part of the low-wage labor force in Chicago and suburban Cook County.

Minimum wage violations:

* Fully 26 percent of workers in our sample were paid less than the legally required minimum wage in the previous work week.

* Minimum wage violations were not trivial in magnitude: over 60 percent of workers were underpaid by more than $1 per hour.

Overtime violations:
* One-quarter of our respondents worked more than 40 hours during the previous week. Of those, 67 percent were not paid the legally required overtime rate by their employers.

* Like minimum wage violations, overtime violations were of substantial magnitude. The average worker with a violation had put in 8 hours of overtime in the previous week - hours
that were either underpaid or not paid at all.

"Off-the-clock" violations:
* Nearly one-quarter (23 percent) of the workers in our sample came in early and/or stayed late after their shift during the previous work week. Of these workers, 69 percent did not receive any pay at all for the work they performed outside of their regular shift.

Meal break violations:
* Three-quarters of our respondents worked enough consecutive hours to be legally entitled to at least one meal break during the previous week. Of these workers, 43 percent received no break at all, had their break shortened, were interrupted by their employer, or worked during the break - all of which constitute a violation of meal break law.

Pay stub violations and illegal deductions:
* In Illinois, workers are required to receive documentation of their earnings and deductions, regardless of whether they are paid in cash or by check. However, 45 percent of workers in our sample did not receive this mandatory documentation in the previous work week.

* Employers are generally not permitted to take deductions from a worker's pay for damage or loss, work-related tools or materials or transportation. But 44 percent of respondents who reported deductions from their pay in the previous work week were subjected to these types of illegal deductions.

Tipped job violations:
* Of the tipped workers in our sample, 15 percent were not paid the tipped worker minimum wage (which in Illinois is lower than the regular state minimum wage).

Illegal employer retaliation:
* We found that when workers complained about their working conditions or tried to organize a union, employers often responded by retaliating against them. Just as important, many workers never made complaints in the first place, often because they feared retaliation by their employer.

* Over one-quarter (26 percent) of workers in our sample reported that they had made a complaint to their employer or attempted to form a union in the last year. Of those, 35 percent experienced one or more forms of illegal retaliation from their employer or supervisor. For example, employers fired or suspended workers, threatened to call immigration authorities, or threatened to cut workers' hours or pay.

* Another 15 percent of workers reported that they did not make a complaint to their employer during the past 12 months, even though they had experienced a serious problem such as dangerous working conditions or not being paid the minimum wage. Over half were afraid of losing their job, 12 percent were afraid they would have their hours or wages cut, and 36 percent thought it would not make a difference.

Workers' compensation violations:
* We found that the workers' compensation system is not functioning for workers in the low-wage labor market.

* Of the workers in our sample who experienced a serious injury on the job, only 9 percent filed a workers' compensation claim.

* When workers told their employer about the injury, 20 percent experienced an illegal employer reaction - including firing the worker, calling immigration authorities, or instructing the worker not to file for workers' compensation.

* Nearly half of workers injured on the job had to pay their bills out-of-pocket (41 percent) or use their health insurance to cover the expenses (8 percent). Workers' compensation insurance paid (all or part) medical expenses for only 3 percent of the injured workers in our sample.

Finding 2: Job and employer characteristics are key to understanding workplace violations. Workplace violations are ultimately the result of decisions made by employers - whether to pay the minimum wage or overtime, whether to give workers meal breaks, and how to respond to complaints about working conditions. We found that workplace violation rates are strongly influenced by job and employer characteristics.

* Minimum wage violation rates varied significantly by industry. Violations were most common in private households and in personal and repair services, where more than 60 percent of workers were paid less than the minimum wage. Other high violation industries include, retail and drug stores, social assistance and education, and grocery stores.

* Minimum wage violation rates also varied by occupation. For example, child care workers, many of whom work in private households, had a violation rate of 75 percent. Sixty percent of personal services and repair workers also had a minimum wage violation. Other high-violation occupations include, building services and grounds workers; cashiers, retail salespersons and tellers and home health care workers.

* Workers who were paid a flat weekly rate or paid in cash had much higher violation rates than those paid a standard hourly rate or by company check.

* Workers at businesses with less than 100 employees were at greater risk of experiencing violations than those at larger businesses. But workers in big companies were not immune: nearly one in six had a minimum wage violation in the previous week, and of those who worked overtime, 52 percent were not paid time and a half.

Finding 3: All workers are at risk of workplace violations. Immigrants and people of color are disproportionately likely to be employed in low-wage industries, and therefore are at greater risk of workplace violations. But violations are not limited to immigrant workers or other vulnerable groups in the labor force - everyone is at risk, although to different degrees.

We found that a range of worker characteristics were correlated with higher minimum wage violation rates:

* Foreign-born workers were 1.5 times more likely than their U.S.-born counterparts to have a minimum wage violation.

* Among U.S.-born workers, there was a significant difference by race: the violation rate for African-American workers was triple that of their Latino counterparts and 27 times that of their white counterparts (who had by far the lowest violation rates in the sample).

* Higher levels of education and English proficiency (for immigrants) each offered some protection from minimum wage violations.

* Overtime, off-the-clock and meal break violations generally varied little by worker characteristics. On the whole, job and employer characteristics were more powerful predictors of the workplace violations considered in this study.

Finding 4: Wage theft. Wage theft not only depresses the already meager earnings of low-wage workers, but also adversely impacts their communities and the local economies of which they are a part.

* Workers: Nearly half (47 percent) of our sample experienced at least one pay-related violation in the previous work week. The average worker lost $50, out of average weekly earnings of $322. That translates into wage theft of 16 percent of earnings. Assuming a full-time, full-year work schedule, we estimate that these workers lost an average of $2,595 annually due to workplace violations, out of total earnings of $16,753.

* Communities: We estimate that in a given week, approximately 146,300 workers in Chicago and suburban Cook County have at least one pay-based violation. Extrapolating from this figure, front-line workers in low-wage industries lose more than $7.3 million per week as a result of employment and labor law violations.

Strengthening worker protections
Everyone has a stake in addressing the problem of workplace violations. When impacted workers and their families struggle in poverty and constant economic insecurity, the strength and resiliency of local communities suffers. When unscrupulous employers violate the law, responsible employers are forced into unfair competition, setting off a race to the bottom that threatens to bring down standards throughout the labor market. And when significant numbers of workers are underpaid, tax revenues are lost.

Policy reforms are needed at the federal level, but state and local governments have a significant role to play as well. The policy agenda to protect the rights of workers in Illinois should be driven by two core principles:

* Strengthen state and city enforcement of employment and labor laws: Illinois is well-placed to tackle the problem of workplace violations, given the state's commitment to enforcement and its energized community advocates. In recent years, state enforcement has been improved substantially through the use of proactive investigations and outreach to community groups, but recent budget cuts have strained resources and slowed progress. Illinois must recommit resources toward enforcement, institutionalize recent successes and enact new legislation to strengthen enforcement tools.

City and county governments must do their part by enforcing the labor standards that fall under their authority, while also dedicating resources to public education campaigns and to support enforcement efforts by community-based organizations, worker centers and legal services providers.

* Update legal standards for the 21st century labor market: Strong enforcement is important, but so are strong legal standards that recognize the changing organization of work in the United States. The strength of laws and the strength of their enforcement are deeply intertwined - weak employment and labor laws send the wrong signal, opening the door to low‐road business strategies to cut labor costs. Raising the minimum wage, closing loopholes that exclude workers from key protections and ensuring state and city resources are used to create living-wage jobs are all key improvements that would raise compliance in the workplace and improve the competitive position of employers who play by the rules

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