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December 8, 2023 | Area Standards, Around the NASRCC, Political Action

Study Shows Millions of Construction Workers Being Cheated

The Century Foundation, in partnership with the United Brotherhood of Carpenters has released a study about misclassification in the construction industry and the numbers are not good.

Using national and state-by-state data, the study shows that in the seven states where the North Atlantic States Regional Council of Carpenters operates, an estimated 230,000 construction workers are illegally misclassified, the cost to taxpayers is more than $1.16 billion and the savings to contractors who cheat is $1.8 billion.

“The construction industry is awash in worker misclassification, a practice that hurts workers, honest employers, and local governments alike,” said Century Foundation Fellow and co-author of the report Laura Valle-Gutierrez. “Misclassification denies construction workers their legal rights and shortchanges these workers by $12 billion a year in lost wages and benefits nationwide. Misclassification also puts law-abiding employers at a significant cost disadvantage and amounts to tax fraud by corporations that skirt the law.”

Through Tax Fraud Days of Action and other efforts, union carpenters have called for better laws, improved collaboration between overlapping agencies and stricter enforcement and punishment. The latest study–with both national and state-by-state information based on multiple data sets–backs up the contention that action is long overdue.

Researchers emphasize that their estimates “likely under-count the extent of worker misclassification in the construction industry” because of the inability to include workers who simply don’t show up in records because they are completely off the books.

Nationwide, between 1.1 and 2.1 million construction workers were misclassified or paid off the books – 10 to 19 percent of the construction industry’s workforce – cheating their workers by more than $12 billion a year from a combination of underpaying them on wages and shortchanging them on contributions for legally required benefits and nationwide costing taxpayers between $5 and $10 billion per year.

“This groundbreaking study reveals the shocking reality that hundreds of thousands of construction workers throughout our region face,” said Director of Organizing Noel Xavier. “Unscrupulous employers undermining the rights and protections owed to them that comes with a heavy toll to the workforce and our economy. Every worker should be afforded the dignity, benefits, and protections they rightfully deserve, and that’s why enforcement agents have to start treating misclassification as the crime that is and investing in better enforcement.”

Employers have a legal obligation to provide various benefits and protections to their employees and pay certain taxes on their behalf. But when employers misclassify workers as independent contractors, they can significantly cut their labor costs because they avoid those obligations. Workers misclassified as independent contractors are generally not protected by laws against sex, race, and age discrimination or sexual harassment.

“Misclassification is an intentional decision by employers to deprive workers of fair wages, benefits, and protections. No industry is immune from corruption, abuse, and illegal labor practices,” said Connecticut Attorney General William Tong. “This important report underscores what we hear from workers every day—misclassification, wage theft, and worker exploitation is a serious problem in the construction industry here in Connecticut and across the nation. It is one of the reasons we expanded our Connecticut False Claims Act earlier this year, and why I have joined with attorneys general across the country calling for strong, unambiguous federal labor laws and robust enforcement.”

The Century Foundation is a progressive, independent think tank that conducts research, develops solutions, and drives policy change to make people’s lives better. They are based in New York, with an office in Washington, D.C.