Misclassification Robs Workers of Pay and Benefits, Hurts Honest Companies

News today on the misclassification of construction employees and recent court decisions in Oregon and California that FedEx’s employees are not independent contractors are reminders that misclassification of workers is rampant in this country and that misclassification hurts workers, honest companies, and government at every level.

“Companies have put more and more risk, responsibility, and cost on their employees-requiring employees to pay their own employment taxes, to do without worker’s comp coverage, to pay for their own uniforms, and to rent the tools they need to work,” said EPI’s Vice President Ross Eisenbrey, who has studied misclassification since the 1990’s. “Misclassification robs workers of fair pay and benefits, and contributes to an economy where wages are flat, profits are soaring, and CEOs and top brass get the lion’s share of pay increases. Meanwhile, the companies that do not arrange their business to avoid their employment responsibilities are disadvantaged. It’s not just bad labor practices, it is unfair competition.”

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Income inequality is fixable in construction

Across the country, states and localities can respond to the President’s call to action and grow wages, create jobs, and reduce income inequality in at least one sector: the construction industry. Today, the Illinois Economic Policy Institute (ILEPI) is pleased to release a new study co-authored with Professor Robert Bruno, a labor expert at the University of Illinois at Urbana-Champaign, on labor market institutions in the construction industry.

The study, Which Labor Market Institutions Reduce Income Inequality? Labor Unions, Prevailing Wage Laws, and Right-to-Work Laws in the Construction Industry, finds that prevailing wage laws did a good job matching common construction rates with the actual market price of labor, increasing worker incomes by just 1.2 percent. On the other hand, they have no negative effect on the total incomes of contractor CEOs. Prevailing wage laws, the data show, reduce income inequality between the highest earners and the lowest earners of the construction industry by 45.1 percent.