Dive Brief:

• Thirty-nine percent of families of construction workers in the U.S. are enrolled in at least one public safety net program such as Medicaid, according to a new report by the UC Berkeley Labor Center released this month. By comparison, 31% of workers across all industries have a family member enrolled in public assistance, Berkeley found.
• This adds up to $28 billion of public assistance for construction workers, which is roughly 10% of the amount spent for all working families. 
• Construction, generally seen as a reliable path to a stable, well-paying job, has become less reliable as a career, according to the study's authors, who attributed part of the dependence on public programs to a decrease in unionization among construction workers.

Dive Insight:

The report analyzed construction workers' families' reliance on programs such as adult and children's Medicaid, the earned income tax credit, temporary assistance for needy families and the supplemental nutrition assistance program.

Analyzing data from six states — Connecticut, California, Illinois, Pennsylvania, Texas and Washington — the report concluded that the industry is bifurcated into "low-road" and "high-road" sectors with strikingly different working conditions. Many of those different working conditions result from employers illegally classifying workers as independent contractors when they should be classified as full time employees, per Labor Department standards.

The report cited several previous studies, which found misclassification rates of 15% in New York, 30% in Virginia and 19% in California. An investigation by McClatchy News cited by the report discovered a third of construction workers in southern states were misclassified.

Classifying workers as independent contractors instead of full-time employees can drastically reduce costs for employers. One-third of labor costs can be cut when employers don't have to pay Social Security, unemployment insurance, Medicare or workers' compensation premiums, according to the report.

Decades of independent contractors

Due to construction's nature, the practice of misclassification is easily hidden, as layers of subcontractors and other employers on the same jobsite can make those practices easier to conceal, the report said.

"The chickens have come home to roost after 50 years of the transformation of labor relations in construction in this country," said Mark Erlich, research fellow at Harvard Law School's Labor and Worklife Program.

After several decades of increased wages for construction workers, there was a flip in the late 1970s, when more employers began to classify workers as independent contractors, saving money as a result on healthcare and workers compensation costs. Erlich said. Like the UC Berkeley study, he attributed part of that shift to the decrease in unionization, as in some union-heavy markets, such as New York and Boston, construction work has maintained its role as a path to the middle class.

Erlich said firms want a level playing field when it comes to how much they pay in salaries and benefits. If they're paying out healthcare and workers compensation costs to workers while others are not, they will likely be outbid for projects by the other builders who are cutting those costs. 

"Most people want to do the right thing, but are also concerned about staying in business," Erlich said.

Brian Turmail, vice president of public affairs and strategic initiatives for the Associated General Contractors of America, said the organization's members are struggling to attract new workers, and offering top-dollar benefits to do so.

"Our guys would love to pay more in benefits, they'd love to pay more in retirement," Turmail said. "They can't find the workers to get into those."

A way out

The report cited data from The Center for Construction Research and Training (CPWR) that found undocumented workers make up 13% of construction's workforce. Undocumented workers have some of the worst working conditions in the industry, and often do not qualify for most social-safety net programs, which means their presence slightly skews the data regarding public assistance, Ken Jacobs, chair of the UC Berkeley Labor Center and one of the report's authors, told Construction Dive.

It's also easier to pay undocumented workers in cash and keep it off the books, Erlich said, and they're often not in as much of a position to complain about their working conditions.

The problem remains that builders need workers while struggling to find materials and work.

Erlich acknowledged there are plenty of "ethical" builders forced to conduct unscrupulous practices in order to compete. It's up to the employers to protect their workers and help end misclassification.

"The single best thing a builder could do is to encourage federal and state regulatory agencies to crack down on misclassification and cash compensation," Erlich said, adding many employers already do so. 

In fact, a New York law recently went into effect, imposing a greater liability risk on prime contractors and reporting requirements on subcontractors. The goal of the law is to give workers a boon in recouping unpaid wages or benefits, as well as force contractors to police their subcontractors' wage practices.

"That's a method of cleaning up the industry, leveling the playing field without placing an unfair burden on any individual firm that tries to play by the rules and finds itself at a competitive disadvantage," Erlich said.