The study further identifies the lack of effective enforcement by regulatory agencies, which are designed to monitor "regular" employers, who in the post-WWII work environment, more or less complied with wage and hour laws, and required little resources to regulate.
With the proliferation of small, fly-by-night contractors, the current regulatory scheme simply lacks the staffing and financial resources necessary to identify violators and effectively enforce wage and hour, workers' compensation and payroll tax laws.
In 1947, the federal Department of Labor's Wage and Hour Division was able to inspect 9 percent of firms. By the 1970s, this was reduced to 2 percent and that as continued to shrink as the federal governments agencies have been further reduced in relation to the markets they supervise.
Because of this lack of enforcement, few of these illegal companies are ever prosecuted and their owners often simply close the doors on Friday and reopen Monday as a differently named entity, performing exactly the same work.
These entities are organized crime in everything but name. They misclassify workers, they pay them less than the minimum wage, when they pay the wage at all. A study from 2014 calculated that in New York and California, this wage theft amounted to "$20 million to $29 million in lost income per week."
They also short workers overtime, they deduct time from breaks not taken, they offer no health insurance, and too often illegally avoid paying worker' compensation insurance, so if the workers are injured, they have no insurance coverage, and no access to any healthcare other than an emergency room, which often translates into yet another taxpayer subsidy of these illegal construction companies.
This underground economy costs taxpayers millions of dollars every year. The shrinking of the regulatory enforcement mechanism means that companies can function with little fear of being caught.
Recorder.com, "UMass Amherst research assesses wage theft in Massachusetts residential construction," May 15, 2015