Under the Radar: How New Business Strategies Are Moving Jobs Outside the Reach of Regulation Annette Bernhardt, James DeFilippis, Nina Martin and Siobhan McGrath Presented at the Annual Meetings of the Industrial Relations Research Association, January 2005

The problem On the ground, community groups and unions are reporting growing numbers of jobs where core employment and labor laws are being broken – what we call “unregulated work.”  Minimum wage and overtime violations, unsafe working conditions, discrimination, retaliation for speaking up or organizing (e.g. FLSA, OSHA, NLRA, Workers Comp) Raises a series of questions:  Where do unregulated jobs exist? Who works in them? Who are the employers? What are the different types of violations?  How common are workplace violations? Are they growing?  What are the causes and drivers of unregulated work?

Defining “unregulated work” 1.Jobs that are legally covered by employment and labor laws, but where employers routinely violate one or more of those laws. 2.Jobs that are not legally covered by employment and labor laws, even though there is effectively an employment relationship, and where conditions of work consistently fail to meet one or more standards of workplace regulation.

The study Three-year study, New York City and Chicago  Phase 1: Descriptive – initial mapping of the landscape.  Phase 2: Understanding the causes – shift to intensive employer and worker interviews  Phase 3: Develop survey methodology for estimating prevalence Data gathered to date:  392 informants interviewed (workers, employers, CBOs, unions, legal aid groups, policy advocates, governmental regulatory bodies, industry trade groups, service providers)  Variety of methods (one-on-one interviews, focus groups, “blitzes”)  Secondary data: industry and business press, newspapers, academic articles, Census data, FOIA data from regulatory agencies

Some key workplace violations Failure to pay minimum wage/prevailing wage Failure to pay overtime, and forced off-the-clock work Not allowing required breaks Failure to pay at all Failure to pay UI and social security taxes on cash wages Taking illegal deductions Violation of health & safety standards Failure to provide training on equipment and safe work practices Failure to carry Workers’ Comp, and to pay it when claimed Retaliation against workers filing claims Retaliation against organizing Discrimination in hiring, promotion, firing Failure to comply with FMLA provisions

Worker mobility We’ve found a considerable amount of structure in how workers move between unregulated jobs 1.Strong industry- and occupation-based segmentation, with similar dynamics to U.S. workforce as a whole (e.g. initial job churning, followed by growing tenure in one job type over time) 2.Pervasive segmentation based on gender, race, and ethnicity 3.A variety of labor market intermediaries that channel worker flows Less evidence of jumps to better paid, “regulated” jobs

How prevalent are violations? Very little representative data:  A few DOL establishment surveys in specific industries (i.e. random garment sweatshop or nursing home inspections)  Data on actual DOL violation cases are not useful for estimation, because of low capture rates  CPS/Census doubtful More common:  Day laborer surveys (random samples of corners)  Convenience sample surveys of immigrant workers in specific cities  Qualitative interview data

Methods of regulatory avoidance In-house externalization (restaurants, grocery stores)  Subcontracting/temping out for work conducted on- site (janitorial firms)  Subcontracting for work offsite (industrial laundries)  Misclassification of workers as independent contractors (day laborers, taxi drivers)  Trafficking/forced labor (laborers smuggled to US to work in restaurants without pay)

Explanations 1: Demand-side factors 1.Trade-sensitive industries: Global competition puts extreme pressure on US wage floor, e.g. garment industry sweatshops 2.Domestic industries: Economic restructuring is putting increasing pressure on labor costs in low-wage industries (e.g. industry consolidation, deregulation, deunionization, Wall Street, Wal-Mart) 3.Semi-public industries: Failure of state to adequately fund public goods (home health care, child care) creates “gray” markets of unregulated caregivers 4.Local demand for unregulated goods and services: Growing labor force with very low wages needs super cheap goods and services, which in turn creates more unregulated jobs (e.g. ethnic retail, “dollar vans”).

Explanations 2: The role of supply, government regulation and labor market institutions Immigration:  But government policy has been critical in shaping both the size and legal status (and therefore vulnerability) of immigrant workers in the US labor market. Other laws and labor market institutions:  Weak enforcement of workplace regulations – both in terms of resources and in terms of the will to enforce  Decline of unions – a critical labor market institution that has historically helped to enforce workplace standards  Declining workplace standards – for example, the fall of the minimum wage has created strong incentives for subcontracting

State & local solutions Legislation: Broadening who can enforce (unions, CBOs) Protecting workers who bring complaints (anti-retaliation) Imposing more substantial penalties Preventing misclassification of independent contractors Responsible licensing/contractor laws Strengthening existing enforcement Resources for DOLs and legal services Administrative will Creating new enforcement models Public-private collaborations Sectoral initiatives