Los Angeles is sometimes referred to as the wage theft capital of the United States, and that’s become even more concerning in light of the recent vote on the city’s minimum wage. Indeed, it’s a city where low-wage workers frequently walk into work expecting to be ripped off by their employers and knowing they have essentially no recourse.
A study from UCLA estimated that frontline, low-wage workers in Los Angeles (around 17 percent of the labor force) had $26.2 million stolen from their wages every week in 2008, amounting to almost $1.4 billion a year. The study also found that this problem is widespread: their survey showed that 30 percent of the most vulnerable Los Angeleans had been paid less than the minimum wage in the previous work week, of which 63 percent were underpaid by more than a dollar per hour. Another common method of wage theft is withholding overtime pay; the same survey found that almost 80 percent did not receive their overtime wages.
With such abundant wage theft, the inability to resolve disputes—almost 50 percent of workers who filed claims or attempted to unionize in response to wage theft faced retaliation from employers—is particularly problematic.
Problems with Jurisdiction
Workers often feel that appealing to the government for help in recovering stolen wages is a useless exercise, since the infrastructure to help workers is badly lacking. The state minimum wage is enforced by the California Division of Labor Standards Enforcement, which has an office in Los Angeles staffed by only two employees, who together handle about 5,000 claims a year. Even for workers who receive favorable judgments on their claims, 83 percent never receive the compensation they are owed, because there are not enough resources to track down employers who do not voluntarily reimburse employees.
This enforcement problem has recently been made more complicated by the fact that the Los Angeles City Council voted on May 19 to gradually raise the city’s minimum wage to $15 per hour. Unfortunately, there’s no one to enforce the new, citywide minimum wage, since the state and federal agencies tasked with minimum wage enforcement can only insist upon the state and federal rates and cannot require employers to pay the higher city wage.
Without an office of its own, then, Los Angeles will be completely unable to enforce their new minimum wage. That’s why another vote from May 19 was just as important as the more-discussed minimum wage vote: at the same time that they raised the minimum wage, the City Council also supported a measure to request that the city attorney draft an ordinance to create an office of labor standards, which would be responsible for enforcing the new minimum wage. Once that ordinance is drafted, it will have to go back to the City Council for final approval, meaning that, at least for now, there’s no organization that’s ready to enforce the minimum wage law.
How Much Theft?
A lack of enforcement would lead to dramatic increases in the theft of wages. Let’s consider two possible situations, using the methodology and data from the UCLA study. A worker today, making $9 per hour with a 12.5 percent rate of wage theft (the average wage theft rate in 2008) is really making $7.87 an hour, and $16,380 a year instead of $18,720. That means, citywide, roughly $29.47 million weekly and $1.53 billion annually are stolen from workers (these calculations assume a full work schedule and that 88 percent of the 744,220 most-vulnerable workers experienced a violation in a given week and are performed by replicating the methodology used in this UCLA study). If we assume that employers will simply not pay their workers any more than they already are, if they are currently stealing from their employees, then total wage theft will skyrocket over time. By the time the minimum wage reaches $15 per hour in 2020, $186.7 million weekly and $9.7 billion annually will be stolen, with each worker losing almost 50 percent of the income they should be receiving.
That is the worst case scenario. A more optimistic assumption might be that the rate of theft will stay the same as the minimum wage increases. In that case, in 2020, workers would be earning $13.13 per hour instead of the promised $15; they would therefore lose $3,900 a year, which, for a low-income worker or family, can make a very significant impact. Los Angeles workers would lose $49.12 million weekly and $2.55 billion annually, adding over a billion dollars per year to the amount of wages stolen, in comparison to rates today.
However, that calculation is probably a low estimate. The total population of Los Angeles, and in particular the populations of those most vulnerable to wage theft (women, minorities, immigrants, etc.), have grown since 2008 and will presumably continue to expand through 2020. Additionally, the rate of theft is likely to have increased since 2008 and will continue to do so. Even for businesses that want to follow the law, if it becomes standard business practice for their competitors to steal from workers, then they will face significantly more pressure to break the law in order to lower their operating costs.
These frightening scenarios should make it clear that it is essential for Los Angeles to have a strong capacity to enforce its new minimum wage laws. In both 2009 and 2014, measures to combat wage theft were brought before the City Council, but both were ultimately lost in the shuffle. The city attorney was even requested to draft an anti-wage theft ordinance, calling for stronger enforcement mechanisms and the criminalization of wage theft, but it was never returned to the City Council.
That must not happen this time. Los Angeles needs an office that can punish offenders through administrative fines and penalties, city permit revocations, and stronger protections against retaliation by employers, among other measures. They have currently estimated that this will cost $500,000 per year, but that figure only allows for five investigators: a number that is much too low. By comparison, San Francisco, which is a quarter of the size of Los Angeles, has twenty-five positions.
The May 19 request for an ordinance is a first step, but the city needs to ensure that a fully funded and adequately equipped office, with well-trained personnel and legal mechanisms for enforcement, is actually created. And doing so is critical if the goals of a higher minimum wage policy are indeed to be met.