THE UNDERGROUND ECONOMY – “Building In The Shadows”
This story, written by Andrew George for NJBiz.com, tells a similar story about the problems in the construction industry hiring undocumented workers over union members and American citizens.
BY ANDREW GEORGE
The way Bill Sproule sees it, there are no winners in New Jersey’s underground construction economy. Sproule, the president and state regional manager for the Northeast Regional Council of Carpenters, says the growing practice of using “off-the-books labor,” or employees “misclassified” as independent contractors for construction jobs is not only detrimental to organized labor for obvious reasons, but it is also exploiting vulnerable workers and taking millions in potential tax revenue annually out of state coffers.
Well, there are no winners aside from the contractors who routinely hire misclassified workers, many of whom are undocumented immigrants, for both residential and commercial construction jobs without any real fear of repercussions or penalties, he said.
“The contractors that are doing this are criminals and the people that are hiring them and looking the other way know what’s happening,” said Sproule. “That’s the biggest problem.”
It’s a subject that industry professionals, particularly in organized labor, have long been trying to call into attention. While several of the state’s trade unions say their pleas over the years have largely fallen on deaf ears in Trenton, they’re hoping that new data will help quantify their claims.
Last year, Stockton University’s William J. Hughes Center for Public Policy was contracted by several trade unions and organizations, including the Bricklayers and Allied Craftworkers Labor Management Committee of New Jersey, the Carpenter Contractor Trust, the Associated Construction Contractors of New Jersey and the Masonry Contractors of New Jersey, to study the scope and impact of the state’s alleged underground construction economy.
Even to those in the trades, who were expecting the numbers to illustrate a sobering reality in the field, the report’s findings were eye-opening.
Stockton found the size of the state’s underground construction economy to be worth around $640 million, with ranges from anywhere between $528 million all the way up to $1.2 billion, and comprised of roughly 35,000 employees working off the books. The report added that the state’s total underground economy ranges between $7.3 billion and $16.3 billion.
Between underground activity and worker misclassification, the report indicates that the state is losing out on potentially more than $20 million in possible tax revenues and unpaid unemployment insurance from the construction industry alone. And that may be a conservative estimate, officials said.
“It’s very much an economic issue,” says Darlene Regina, chief operating officer for the ACCNJ. “You pay your fair taxes, I pay mine. Everybody, let’s level the playing field.”
Greg Lalevee, chairman of the Engineers Labor-Employer Cooperative and business man- ager for the Springfield-based International Union of Operating Engineers, Local 825, said that, in addition to “cheating the state,” the contractors who knowingly hire misclassified workers are making it harder on those that choose to play by the rules. “They can’t compete because there’s people who are doing everything they can to skirt the law,” Lalevee said.
The biggest loser in all of this may not even be the state, trade union officials say. Those officials point to the misclassified workers themselves. Without the protections of workers’ compensation laws and any- thing resembling adequate benefits, the wear and tear of physical labor, both in the short term and especially over a long period of time, can be potentially devastating for misclassified workers.
“They’re absolutely being exploited,” Sproule said. Without placing blame on misclassified workers, trade union officials say that they want them to be able to “come out from the shadows” and participate legally in the workforce.
But with an ever evolving national discourse on the status of immigration laws that has become increasingly volatile since President Donald Trump’s administration came into office in January, industry officials and analysts are largely unsure of how to proceed.
“People are afraid to speak up,” says Lou Kimmel, director of New Labor, a New Brunswick- based organizing and advocacy group for immigrant workers. But that doesn’t mean the workers are at fault for not speaking up or coming out against unfair labor practices, he added. “Systems are in place and people respond to the system,” said Kimmel.
Echoing the shared sentiment of many trade union officials, Regina added that the pur- pose of the report was not to single out the misclassified worker, but rather the policies, or lack thereof, that allow the practice to continue.
“If we educate the public they will realize that we’re not trying to hurt a certain work- force,” Regina said. “We’re very much focused on diversity, on growing our workforce.”
John Froonjian, a senior research associate at Stockton who worked on the report, said part of his qualitative research involved directly interviewing workers in the state’s underground economy for their perspective. Froonjian said his findings hit home on “middle class New Jersey.” “This affects working fam lies,” he said. “These workers feel that they are at a disadvantage.”
Sproule added that, in his 35-plus years in the industry, he’s seen the use of misclassified workers steadily balloon from a relatively small practice perpetuated by a few rogue contractors to what he now identifies as a major challenge to those in residential and commercial construction in the state. “Me, personally, I’ve seen it evolve into the issue it’s become,” said Sproule.
There are laws currently in place to combat the practice’s rise, but industry officials say that, between a lack of enforcement and minimal penalties for cases that are caught, delinquent contractors don’t feel threatened by the unlikely chance they’ll be presented with anything more than a figurative slap on their wrists.
“The penalties that have been in place for 30-plus years now need to be increased so that it’s not just the cost of doing business,” says BACNJ Director Rich Tolson.
As identified in the report, enforcement is seemingly an issue due to a lack of resources, as just seven field staffers out of 25 at the state Department of Labor and Workforce Development are dedicated to misclassification. Between 2014 and 2015, just over 35,000 field inspections resulted in the assessment of $2.6 million in penal- ties for misclassification.
Froonjian said it’s important to note that state inspectors are self funded and taxpayer dollars are not being put towards the service, begging a larger question as to why enforcement efforts aren’t increasing. “If they had more people, they would catch more of this,” Froonjian said.
So what can be done? Froonjian said he found in his research that other states “are much more aggressive in policing misclassification.”
But Tolson said the field staffers aren’t to blame, as “they’re handcuffed in enforcing the existing laws we have.” Instead, he points to Gov. Chris Christie’s administration for a lack of interest in the issue. “I don’t think there’s a true desire from the front office to resolve this problem,” Tolson said.
A Christie spokesperson did not immediately respond to a request for comment. But it’s not just Christie who hasn’t been listening to their calls for action. Trade union officials say the issue has largely been untouched by politicians on both sides for various reasons. Now, with data on their side and awareness efforts, they’re hoping that will start to change, they said.
The study got the attention of Senate President Steve Sweeney (D-West Deptford). “The misclassification of workers is a real problem for New Jersey’s and the nation’s economies,” Sweeney said in a statement to NJBIZ. “Not only are these workers often forced to earn a living under unsafe conditions for unfair compensation, but the millions of dollars in hidden revenue means responsible employers are left to carry more of the weight when it comes to things like un- employment insurance and tax collections. In fact, the only people who benefit from this employment are the employers willing to skirt the law in order to line their pockets.”
Tolson hopes the study will spark an acknowledgement of the issue. “I think if there are laws in place and laws being enforced with employers that are forcing these people to work under these conditions, if we start showing some examples that they have people that do care, I think there will be a groundswell of those who will come forward and grow tired of it,” he said.
Sproule agreed. “This is an issue that needs to be dealt with and we can’t just look the other way anymore,” he said.