Frank Manzo IV is the Policy Director of the Illinois Economic Policy Institute (ILEPI). Visit ILEPI at www.illinoisepi.org or follow ILEPI on Twitter @illinoisEPI.

Analysis of new data from the Current Population Survey (conducted jointly by the U.S. Bureau of Labor Statistics and the U.S. Census Bureau) reveals that 4.8 percent of the Illinois workforce earns less than $8.25 an hour, the legal minimum wage for workers aged 18 years or older in firms with 4 or more employees. In total, an estimated 264,508 workers earned less than the minimum wage in 2014. Among sub-minimum wage earners (SMWEs), hourly pay averages just $6.66, or $1.59 per hour below the minimum wage floor. This translates into an economic loss of $1,654 over the year for part-time employees who worked 20 hours per week in 2014.

While many of these workers are under 18 years old or are employed by small businesses excluded from the minimum wage law, many others are the victims of wage theft. A 2009 study by researchers at the National Employment Law Project, the University of Illinois at Chicago, Cornell University, and the University of California – Los Angeles found that 26 percent of low-wage, “front-line” workers were paid less than the legally-required minimum wage. The highest violation rates occurred in apparel and textile manufacturing, private households, and personal and repair services. Similarly, in a survey of 57 car washes in the City of Chicago, the University of Illinois at Urbana-Champaign found that 76 percent of hand car wash workers earned below the state’s minimum wage and 13 percent earned less than $2 per hour.

Minimum wage theft occurs for many reasons. First, there could be information problems in that employers may not realize that their practices are depriving workers of owed income or that they have misclassified workers as temporary or contingent workers. Second, tipped employees may not be compensated by their employer enough to close the minimum wage gap when the tips fall short. Third, business practices that elevate short-term profits above long-term profitability put downward pressures on wages. Fourth, economically inefficient social issues such as racial, gender, sexual orientation, and religious discrimination could also be factors.

A fifth reason for why wage theft occurs is the most plausible. It is the relative power balance between firms compared to workers. When unemployment is extensive, there are lots of potential workers, so employers do not feel pressure to improve wages and standards. When a significant number of undocumented workers come to Illinois in search of a better quality of life, employers are able to extract relatively cheap labor from vulnerable individuals who are not fully protected under the law and face threats of deportations. When union members declines and funding for the Illinois Department of Labor fall, deterrents against stealing worker wages wane. According to one researcher, unions are still “the best and most effective vehicle for stopping wage theft” because they educate workers about their rights, raise wages, file grievances, provide attorneys to workers, and maintain community relationships.

There is evidence for this fifth reason. A 2013 study conducted jointly by the Illinois Economic Policy Institute (ILEPI) and the University of Illinois at Urbana-Champaign found union membership reduced the probability that a given worker earned less than the minimum wage by 70 to 80 percent. Sub-minimum wage earners were also statistically more likely to be involuntarily part-time, students, workers with less than a high school diploma or equivalent, Latino or Latina, and foreign-born immigrants. Employers were able to exploit these vulnerable groups and pay them below the minimum wage. Furthermore, the number of workers earning below the legal minimum in their state rose by over one million workers during the Great Recession, when unemployment was high and employee bargaining power was low.

The minimum wage and sub-minimum wage employment are often perceived to affect only the teen labor market. This is far from reality. Nationally, workers who are at least 25 years old comprise 67.4 percent of all workers earning less than the minimum wage in their areas. Every $1 increase in the minimum wage in Illinois from 2004 through 2013 has been found to raise the teen incomes by 50 cents per hour, and raises the lowest-paid teens’ incomes by 71 cents an hour. Meanwhile, the minimum wage hikes had inconclusive impacts on employment outcomes such as the employment rate and hours worked per week. Minimum wage hikes help, rather than hurt, teen workers in Illinois… as long as they are enforced.

Enforcement and deterrence are the policy prescriptions to prevent minimum wage theft. According to a 2010 report on wage theft, Illinois had 13 investigators in the state Department of Labor tasked with enforcing minimum wage and prevailing wage requirements in the state, or one per 228,000 workers. Doubling the number of investigators would improve compliance. Meanwhile, unionization must be promoted and unions should partner with worker centers and community groups to help state investigators target particularly unscrupulous employers. The state should raise the minimum wage to $10.10 per hour, but it should also increase enforcement mechanisms as well.

In Illinois, over 250,000 workers earned less than the minimum wage in 2014. This is a difficult issue. However, the causes can be avoided and mitigated. The social, economic, and psychological costs can be avoided and mitigated. To reduce income inequality, increase consumer demand, and ultimately grow the Illinois economy, the rampant problem of sub-minimum wage employment must be solved.

See also:

• Illinois Insights Blog: ILEPI on Chicago Tonight Discussing Minimum Wage;
• Press Release: Paper: Raise State Minimum Wage to Stimulate the Economy;
• Full Report: Minimum Wage, Maximum Benefit;
• Full Report: Illinois Teens and the Minimum Wage;
• Full Report: Illinois Income Report.