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May 11, 2015 | Area Standards

New Study Examines Wage Theft in MA Construction

New research published by the University of Massachusetts Amherst Labor Center asserts how the illegal theft of workers’ wages, especially those of undocumented immigrant laborers, has reached epidemic levels in the residential construction industry in Massachusetts. In the working paper “The Epidemic of Wage Theft in Residential Construction in Massachusetts,” Tom Juravich, professor of sociology, with research assistants and co-authors Essie Ablavsky and Jake Williams, present three case studies examining the subcontractors for one of the nation’s largest homebuilding companies, regional drywall-hanging companies and affordable housing construction by a community development corporation.

Based on legal records, news reports and 27 in-depth interviews with construction workers, contractors, homeowners, union staff and community-based organizers, Juravich and his co-authors present evidence that contractors in residential construction responded to their financial losses from the Great Recession by the wholesale and illegal misclassification of their workers as independent contractors.

“By not paying taxes on workers’ wages and by not contributing to worker compensation funds, contractors reduced their building costs by 30 percent,” the paper states. “These contingent workers—the majority of who are undocumented immigrants—are routinely cheated out of their wages by contractors who pay late, do not compensate for overtime, and sometimes do not pay for work at all. Firms generate profits by victimizing some of the most vulnerable workers in Massachusetts, delivering poor quality homes to consumers, and leaving citizens of the commonwealth on the hook to make up for hundreds of millions in lost tax revenue.”

Juravich and his co-authors focused on residential construction in and around Worcester and Framingham, two modest-sized cities with populations of 182,000 and 68,100, respectively. “We chose this location, in part, because of the belief that innovation (and the violations that prompted them) often begin in smaller markets like this one before entering larger urban markets such as nearby Boston,” Juravich says. “In the case of construction, practices such as these emerge in these regional markets in residential construction, far away from the watchful eye of labor organizations and other regulatory bodies that tend to focus on larger cities and commercial construction projects.”

Juravich and his co-authors illustrate the tactics allegedly used by a major national homebuilder and its subcontractors, five of which were ordered to pay more than $400,000 in unpaid wages and penalties by the Commonwealth of Massachusetts’ Attorney General’s office for wage theft violations in the state. The researchers say documentation shows that while the homebuilder financially benefited from this wage theft, the company was legally insulated from being charged with any wrongdoing and few of these wages and fines were ever collected, as many of its subcontractors simply closed their doors or reopened under new names.

They also highlight regional drywall firms that they say have a long history of illegal misclassification and wage theft in New England, demonstrating how easy it is to reorganize and resume operations under new names in order to avoid prosecution and to continue these practices.

“Because no existing mechanism prevents such firms from avoiding prosecution, we have seen an explosion of firms that employ illegal misclassification and wage theft in the drywall industry,” Juravich says. “This phenomenon deeply threatens the economic viability of legitimate contractors who play by the rules. Perhaps more troubling is that the growth of these companies who make their profits from illegal employment practices has begun to move beyond residential construction into more commercial and public types of construction.”

The paper suggests a number of policy recommendations for Massachusetts to combat illegal misclassification and wage theft, including strict enforcement of penalties and fines, public identification of violators, better permanent inter-agency coordination and a dramatic increase in workplace raids.

“We have seen how woefully inadequate the regulatory structure has been and watched the emergence of a whole new production regime in residential construction built upon a foundation wage theft,” Juravich says. “Without concerted change, these new methods of production will both intensify and spread to other forms of construction victimizing largely immigrant workers in the industry. The quality of construction will continue to decline delivering a poor value to homeowners while leaving the taxpayer on the hook to cover lost revenue and the medical cost of those not covered by workers’ compensation.”

Ultimately, however, the authors state that the real solution to the crisis lies with immigration reform.

“The single, most important policy action to combat wage theft and misclassification is genuine immigration reform,” they conclude in the paper. “Without real immigration reform that will provide a path to citizenship for the more than 10 million undocumented workers in the United States, it will be difficult to control forced misclassification of work and the theft of workers’ wages. As long as immigrants remain hidden in the shadows and largely excluded from regularized employment, unscrupulous employers will continue to exploit their vulnerability to increase their own profit.”