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The Rampant Swindle Costing American Workers

Getty Images/AFP

It’s the first Friday of the month, so you know what that means: It’s jobs day! At 8:30 am, the Bureau of Labor Statistics will release its first estimate for how many jobs the economy created in August. Economists project a gain of 230,000 jobs and a slight drop in the unemployment rate.

While job growth is important, we also care about the quality of those jobs. Do they pay a living wage? What about benefits like health care, paid vacation and parental leave? Those are important questions—and for too many workers, the answer is no. But many Americans are in an even worse position: They aren’t even listed as employees. Instead, employers misclassify them as independent contractors.

What does that mean? For one, independent contractors don’t receive worker protections like rules governing the minimum wage and overtime pay. They are not eligible for benefits and often must pay for their own equipment and uniforms. Independent contractors also must pay premiums for workers compensation and unemployment insurance, and are responsible for the employers’ half of payroll taxes. These excess costs can subtract 20 percent from a worker’s income.

If incidents of misclassification were rare, this wouldn’t be a big problem. But they’re not. On Thursday, McClatchy unveiled a yearlong investigation into this practice, focusing on government contractors who received stimulus funding. What they found is alarming. Employee misclassification is rampant. In Florida, 15.5 percent of construction workers were wrongly listed as independent contractors. In North Carolina, it was 35.2 percent. In Texas, it was even higher. These workers had little power to demand proper classification, given the scarcity of jobs during that period. One worker who knew his employer was taking advantage of him told McClatchy that he was, “just happy to be making anything.”

This isn’t just a problem for federal contractors either. It also exists in the private sector. FedEx has long been one of the biggest offenders. Its drivers are technically independent contractors, although the shipping company dictates almost every part of their job. In doing so, FedEx unloads significant costs onto their workers, including money for the truck, equipment and uniform. Luckily, this swindle could be slowly nearing its end. Last week, drivers in California and Oregon received a big victory when an appeals court ruled that they were, in fact, employees, not independent contractors. FedEx says it will appeal the decisions, so these cases still have a long way to go. But the California and Oregon rulings were a step in the right direction.

In the meantime, New York provides an example for how regulators can reduce misclassification. In 2007, the state created a Joint Enforcement Task Force to conduct random investigations and impose harsh penalties on firms determined to be violating the law. McClatchy reports that the task force has recovered nearly $2 billion in lost wages since it began. Expanding such a program nationally would not be simple, but it will be vital to ensure that workers receive fair treatment in the future. After all, a survey released Thursday found that 21.1 Americans are independent contractors. If just 10 percent are misclassified, that’s more than two million workers who aren’t receiving the worker protections they deserve. That’s unacceptable. And we shouldn’t forget about them even as the economy improves.

—Danny Vinik

News from Thursday:

HALBIG: The D.C. Circuit Court announced Thursday that it was withdrawing its July decision, when two out of three judges upheld the latest Obamacare challenge. The court granted an “en banc” review of the case—meaning that all 11 judges will now decide its fate. Jonathan Cohn explains what this means for the law and the potential for another Supreme Court challenge. (QED)

WAGES: Police arrested hundreds of fast food workers fighting for a higher minimum wage with strikes and civil disobedience on Thursday. Fast food strikes have grown from one city to over 100 in the last two years. (The Guardian)

ECONOMY: The European Central Bank surprised the market Thursday when it announced that it would further cut interest rates and begin purchasing privately issued securities. Neil Irwin explains what it all means. (The Upshot)

CORRUPTION: Bob McDonnell, Virginia’s ex-governor, is now a felon. A jury convicted the McDonnells on multiple counts of conspiracy, corruption, and fraud. (Trip GabrielNew York TimesKatherine Miller has a rundown of how McDonnell’s defense strategy was to portray his wife as attention-crazed, paranoid, and slutty. (Buzzfeed)

ENERGY: A federal judge ruled that BP was grossly negligent in the 2010 Gulf of Mexico disaster. The oil giant could be on the hook for billions of dollars more in fines and damages. (Margaret Cronin Fisk, Laurel Brubaker Calkins and Jef Feeley, Bloomberg)

Stuff worth reading:

Koch ads: According to a new analysis, the Koch billionaires' political network has funded one out of every 10 TV ads running for the Senate midterm races. That's almost 44,000 ads since 2013. (Michael Beckel, Center for Public Integrity)

A national embarrassment: More than 14 percent of American households have difficulty affording food. While statistics from other countries aren’t as detailed, America may have the worst hunger problem of any rich nation. (Jordan Weissmann, Slate)

Hate-read of the day: The Economist thinks a new book on the history of slavery in America is too hard on slave owners. Really. The article says: “Almost all the blacks in his book are victims, almost all the whites villains. This is not history; it is advocacy.”

What we’re watching:

The jobs report.


Cosmo will now issue political endorsements for pro-women candidates. But, as Rebecca Leber points out, the magazine frequently sends anti-feminist messages. That’s a bit contradictory.