Protecting Workers Through Policy

Stricter state penalties reduce underpayment of employees

wage theft
Can policy prevent employers from paying their employees below the minimum wage?

From President Obama’s call for a $10.10 federal minimum wage to the “Fight for $15” movement, raising the minimum wage has become a hot button topic in the United States. Yet this discussion often ignores the question of what happens when employers pay their employees below the minimum wage—a phenomenon called wage theft. A new working paper by IPR political scientist Daniel Galvin highlights this issue and discusses the role that public policy can play in reducing it.

Daniel Galvin

Until now, much of the existing research on wage theft has been economic, suggesting that workers are underpaid because employers profit from paying their workers less while existing penalties do little to prevent this from happening. Galvin’s research tests this assumption, asking whether stricter policies could play a role in enforcing state and federal minimum wages.

He finds that policy can, in fact, be used to protect workers from being underpaid.

Between 2005 and 2014, Galvin estimates that about 16 percent of low-wage workers were paid less than the minimum wage. When violations occur, it is very costly to the worker—according to Galvin’s analysis, victims of minimum wage violations lose about 26 percent of their income on average.

His research consists of a state-by-state analysis of wage-and-hour laws and estimates of minimum wage violation rates from 2005–2014. He also looks at a number of recent anti-wage theft policies at the state level to estimate their effects.

Workers, he discovers, were significantly less likely to be paid below the minimum wage in states with stricter laws against wage theft. For example, low-wage workers in Washington state, which has some of the strongest penalties in the country, were much less likely to be underpaid than the same workers in Virginia, which has some of the least restrictive penalties. He also finds that states that have recently enacted strong laws against wage theft have seen fewer minimum wage violations as a result.

For policies to be effective, Galvin observes three necessary conditions: favorable partisan majorities in state government, determined coalitions of workers’ advocates lobbying for change, and the enforcement of stringent new penalties.

“Wage theft must therefore be seen as the result of policy choices—which are shaped by advocacy group pressures and political alignments—and not solely economic forces,” he writes. 

Previous research has assumed that penalties do little to defend workers from wage theft, but Galvin finds that carefully tailored public policies can, in fact, serve to protect workers’ pay. As policymakers continue to discuss the possibility of raising the minimum wage, his work highlights the importance of public policies that help to ensure that workers actually receive the wages they are owed and to which they are legally entitled.

Daniel Galvin is associate professor of political science and an IPR fellow. The working paper, “Deterring 'Wage Theft': Alt-Labor, State Politics, and the Policy Determinants of Minimum Wage Compliance” (WP-15-08) is available here.

Photo credit: Chris Potter, Flickr.