Who Saves? Probably Not You
Some developers prefer contractors who hire non-union because they believe it’s cheaper than hiring unions. Maybe that’s cheaper for the developer, but definitely not for you.
Manhattan District Attorney Cyrus Vance announcing the formation of the New York Construction Fraud Task Force, created to combat an increase in the abuse of workers, investors and the public by construction companies that skirt legal requirements. – www.manhattanda.org
Does it cost New Yorker renters and buyers less when a building is constructed by non-unions or by unions?
OK, let’s compare some of the costs that occur when non-unions are hired to build, and when unions are hired.
To do this comparison, we’ll look at the work done in New York City since 2015 by the 10 busiest non-union concrete companies and the 10 busiest union concrete companies. The list of these companies and a partial comparison is in the table below. Here are a few take-aways.
Non-Unions: 4X More OSHA Fines
Since January 1, 2015, non-union and union contractors have completed a similar amount of work. The busiest 10 non-union concrete contractors have completed 34.6 million square feet of construction compared to the 28 million done by the top 10 union concrete firms. But the non-union companies were hit with 4 times more fines from OSHA for workplace violations: a whopping $324,556.
That means if you’re estimating a project for your average non-union concrete crew, you have to set aside 4 times more money in the expectation of OSHA fines than you would need to set aside for your average union crew.
In New York State, wage theft accounts for more than $1 billion in lost earnings per year and affects tens of thousands of workers.”
New York Construction Fraud
But if non-union contractors are paying so much more in OSHA fines, how do they keep their costs competitive? One way we know about is wage theft.
$3.9M in Wage Theft
Wage theft happens when an employer manipulates their employee in a way that deprives them of their proper income. Employers either under-report employee hours, or mis-assign a worker’s role as a lower-paying one, or collect health insurance fees while providing no health insurance. Some even take a “work fee” for providing employment – which is the definition of extortion.
All of these instances have been cited in indictments and lawsuits against non-union contractors since 2015. Between settlements paid in class action lawsuits and settlements paid as a result of investigations by New York’s Construction Fraud Task Force (NYCFTF), the top 10 non-union concrete contractors paid a total of $2,233,844 to settle wage theft claims.
Meanwhile, the 10 union subcontractors only saw one lawsuit from one plaintiff, which cost that contractor $235,000. That’s about one-tenth of the fines levied against non-unions.
But that 10:1 disparity is going to get much worse when you consider the major cases pending against other non-union contractors who don’t crack the top-10 list. Parkside Construction is the 12th busiest non-union contractor. NYCFTF has charged Parkside with stealing more than $1.7 million from employees. Add that to the fines to the top-10 non-union shops and we're at $3.9 million and climbing.
… [T]hese costs … come to an average of $11,016 per [misclassified] worker…This is a conservative estimate of the economic and fiscal costs of employer fraud in the construction industry that are shifted to taxpayers and law- abiding employers.
Dr. James A Parrott
Director of Economic and Fiscal Policies at the Center for New York City Affairs at the New School
The 2016 Cost of Fraud: $761.2M
But there are other costs that come from this criminal activity that are often overlooked. When an employer cheats an employee of wages, those wages are kept off the books, and as a result, the contractor is also ripping off the state and federal governments of taxes – money that pays for our public services. When you hear about another subway fare increase, think about the wealthy builders who cheated the system and may have deprived the city of funds now being foisted onto you.
Health insurance provides another scam opportunity for employers who choose to cheat. When an employer doesn’t provide proper insurance to their employees, the costs of caring for them when they are injured or sick – construction is a dangerous profession – falls on the rest of us, who carry those costs within our insurance premiums.
According to Dr. James A. Parrott, Director of Economic and Fiscal Policies at the Center for New York City Affairs at the New School, bad-apple New York City construction companies were able to rip off the city and state of New York, the federal government, and insurance customers to the tune of $761.2 million in 2016 alone because of wage theft.
In his report entitled “The Substantial Fiscal Costs of Employer Fraud in the New York City Construction Industry,” written in 2017, Dr. Parrott estimates that in 2016 there were 69,100 misclassified construction workers in New York – people paid illegally off the books by contractors to evade paying taxes and insurance premiums (possibly among other nefarious motives as well). That number of workers represented 42% of the construction trade in the city that year. If accurate, these numbers imply rampant criminality among some non-union contractors.
This behavior is what spurred the formation of the New York Construction Fraud Task Force in 2015. In their launch announcement they said, “Our Task Force works to combat illegal conduct in all facets of real estate development, including unfair labor practices. In New York State, wage theft accounts for more than $1 billion in lost earnings per year and affects tens of thousands of workers.”
Download Dr.James A. Parrott's 2017 summary of the real cost of construction fraud in New York.
So Who Saves? Not You
Based on the public record of indictments and fines levied against non-union contractors, we can see how some of them are providing savings to the developers who hire them: through wage theft, tax evasion and insurance fraud. But those savings come at a cost to New York citizens who must pay higher taxes and insurance premiums because of those bad practices. In his 2017 report, Dr. Parrott estimates that for each worker wronged by wage theft, New Yorkers picked up a tax and insurance tab of $11,016.
Someone is saving money by hiring non-union contractors. But if you believe Dr. Parrott, it’s not you, the average New Yorker, who is instead subsidizing those profits that are going into the pockets of some very wealthy people.