Prevalence of Wage Theft and Its Effect on Job Change

Purpose

Although literature documents that wage theft is widespread in low wage industries, extant literature is limited to state-level or local statistics, and representative data that examines its prevalence and dynamics are scarce. The implications of wage theft are serious with the negative socioeconomic consequences on the affected individuals, families, low-income communities as well as society at large. The first purpose of this study is to estimate the prevalence of the federal minimum wage and overtime pay law violations experienced by hourly employees with low-wage jobs. The second and third purposes are to examine the effects that employment characteristics such as occupation, industry, work schedule, pay frequency, union membership, and number of employees have on the probability and dynamic of the violations.

Methods

This study uses waves 5 and 8 data files of 2008 Survey of Income and Program Participation. Topical modules of wave 5 and 8 files contain detailed information on work schedules and earning of all workers including those whose hours of work varied. The sample for this study was limited to 2,827 adult hourly wage earners in low-wage industry and low-wage occupations in wave 5 data file, not exempt from minimum wage and overtime pay requirements of the Federal Labor Standard Act. The sample was followed a year later in wave 8 data file for analyses of their demographic characteristics as well as the characteristics of their employment. Using variables on usual hourly pay rate, daily work hours, number of weekly work days, and monthly earning, actual hourly wages were estimated, and the prevalence of the federal minimum wage and overtime pay violations were analyzed. Regression analyses were conducted to examine the effects of wage theft on job dynamics.

Findings

Nearly 50% of the analytic sample experienced a wage theft, which includes 18% WHO experienced the federal minimum wage violations and more than three quarters of those who experienced overtime pay violations (among those worked more than 40 hours). Disproportionately large percentages of those working in food service and wholesale/retail industries, with non-regular work schedules, and without union coverage represented the group whose right to the federal minimum wage was violated. After a year, nearly 11 percent of the sample changed into different hourly jobs and slightly more than 5 percent changed into salary jobs, while 68 percent kept the same hourly jobs and slightly more than 11 percent stopped working. Regression analyses revealed that experience of wage theft plays a significant role along with employment characteristics on the dynamics of job change. 

Implications

This study contributes significantly to the extant literature by adding empirical evidence on the prevalence, probability, and dynamics of the federal minimum wage and overtime pay violations. The findings and implications are closely in line with the literature in that industry variations in compliance with the FLSA is largely explained by labor market characteristics, calling for institutional interventions to wage theft.