New Misclassification Study Shows Impact in California

Posted by National Alliance for Fair Contracting on

By Jim Kollaer on Wed, 10/15/2014 – 10:30am 

In a September 2014 study entitled Sinking Underground: The Growing Informal Economy in California Construction, misclassification of more than 39,800 construction workers is a key reason that the underground economy in construction is contributing to the low wages, difficulty in recruiting qualified craft workers and loss of wages and taxes in the State of California.

According to the study, released by the Economic Roundtable, a non profit research organization based in Los Angeles, in 2011 more than 143,900 construction jobs in the state were “informal” – code for off the books, misclassified as independent contractors or unreported by employers.

The study looked at wages and construction jobs from 1972 to 2012 and found that the number of construction workers that were unreported or misclassified increased by 400% during that period.

The study cites that, “Specialty trades, such as drywall, have the highest level of informality with over 25% employed informally in 2012.  Building Construction was next, with 20% estimated to be informal.”The major impact on the industry is that those construction companies in California who are “doing it right” have costs that are 30% higher that the “off the books and misclass” contractors.  Imagine what that disparity does to the bidding process.  The report cites several personal stories to illustrate its points.