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Employers Are Stealing Billions of Dollars a Year From Their Workers

Getty Images/AFP/Frederic J. Brown

As the economy slowly recovers, it’s become increasingly clear that it’s not just unemployed Americans who need help from the government. It’s those that are employed as well.

That’s the main finding of a new report from the Economic Policy Institute on wage theft. What is wage theft? It’s when employers refuse to pay their workers their rightful wages and benefits, such as refusing to pay overtime. It’s a major problem across the United States. One study, which EPI cites, examined three cities (New York, Chicago and Los Angeles) and found that two-thirds of workers in low-wage industries had experienced a pay-related offense in any given week in 2008. Those violations cost workers more than $2,600 a year on average—nearly 15 percent of their total earnings. If wage theft is as prevalent in the rest of the United States as it is in New York, Chicago and Los Angeles, then it costs workers more than $50 billion a year.

It’s tough to calculate how widespread wage theft is because much of it goes unreported. But not all. The U.S. Department of Labor, state departments of labor, state attorneys general, and private attorneys file cases on behalf of workers to recover lost wages. No single database collects this information so EPI consulted with state labor departments and attorneys general and researched private civil litigation cases to estimate the total amount that workers recovered in wages. In 2012, it totaled at least $933 million. In fact that understates the total since the researchers didn’t receive data from six state departments of labor and five attorneys general.

Remember, the actual amount recovered is only a fraction of the total wage theft. In other words, wage theft totals billions of dollars every year. EPI puts these numbers in perspective to show just the significance of these pay-related offenses. For instance, in 2012, people and companies reported $341 million in lost property from robbery, all forms of it. These are just reported instances of robbery, so that certainly understates the true extent of it. Even so, workers recovered three times as much in stolen wages as Americans lost in reported robberies. That's a massive loss for low-wage workers.

“When you’re owed $2,000—when an employer has been cheating you out of $2,000— that’s a huge amount of money for someone in that situation,” Ross Eisenbrey, the vice president of EPI and one of the authors of the study, said. “It literally means the difference between paying the rent and eating or paying the rent and buying gas for the car.”

What can we do about this? EPI recommends doubling the number of investigators in the Department of Labor’s Wage and Hour Division from 1,100 to 2,200. For his part, President Obama has asked for an additional 300 investigators. But that alone isn’t enough. EPI also wants to significantly stiffen the penalties for wage violations. Currently, the maximum civil penalty is just $1,100. Much higher fines would make companies think twice before stealing their workers’ wages.

There’s another way to cut down on wage theft: ensure workers have leverage to find another job if the violations continue. Since the financial crisis, employers have had little to fear about stealing their workers’ wages. After all, it’s better to have 15 percent of your wages stolen then to not earn anything all. Returning the economy to full employment changes that dynamic. Workers would then have leverage to demand their full wages—or else they’ll find another job.

But we don’t have full employment right now—and haven’t had it in many years—so workers don’t have that leverage. The government could do help fix this, by investing in infrastructure, for instance, or creating a subsidized employment program. But Republicans have no interest in such policies.

All of this has a significant human cost. Those without jobs struggle to find new employers. Those with jobs find that their employers take advantage of them, costing them billions of dollars a year. “It’s hard probably for most middle class people to even appreciate how crushing that can be,” Eisenbrey said.