The importance of strong government regulation of the labor market is highlighted by the difference between Massachusetts and Connecticut. In Connecticut, there is vigorous enforcement of all relevant requirements to operate as a business, from being registered in the state to payment of workers' compensation and taxes. The Wage and Workplace Standards Division in the state's Department of Labor make numerous on-site investigations, and when they visit one site, they visit multiple locations in the area.
This increases the likelihood of business being caught and being fined or shut down on multiple violations. Having substantial fines from multiple agencies can make it more difficult for contractors to make money on jobs. Workplace raids are important as they create an environment of deterrence and make it less likely contractors will assume they will not be caught.
Fines and penalties also need to be set at an amount great enough to prevent a business from merely treating them as part of the cost of doing business.
The exploitation of undocumented workers also argues for comprehensive immigration reform, but it also underscores the other issue. When companies say they cannot find "good" workers, what they really mean is that they cannot find Americans who will work for the exploitive wage rates they want to pay.
The danger for all workers is that legitimate employers will be driven out of business or they will adopt the illegal labor practices of these fly-by-night contractors in an attempt to survive.
To be effective, the regulation of these subcontractors must involve aggressive, on-site investigations and strong coordination between all the relevant agencies. They must share information and having the ability to act to shut down illegal contractors and prevent them from reappearing with a new name and the same old illegal practices.
States like New York would do well to study Connecticut's enforcement model to help stem the tide of these illegal employment practices.
Source: umass.edu, "The Epidemic of Wage Theft in Residential Construction in Massachusetts," Tom Juravich, Essie Ablvasky and Jake Williams, May 11, 2015