Illegal ‘underground’ construction costs NJ taxpayers millions, report says

The state of New Jersey loses millions of dollars in uncollected taxes each year due to a robust and growing underground construction economy, according to a new report from researchers at the William J. Hughes Center for Public Policy. Stockton University.

The report finds that this illegal construction activity illegally undermines companies that follow the rules, decreases work opportunities for unionized workers, and may be responsible for lower state construction wages compared to other states.

According to John Froonjian, one of the authors of the Stockton Report and senior research associate and director of the Stockton Polling Institute, what is happening is very important and very costly to the state.

“The underground construction economy is probably worth at least $ 640 million and our ranges are from half a billion to $ 1.2 billion and involve 35,000 workers across New Jersey,” he said. declared.

This means “at least $ 20 million in lost taxes and unpaid UI.” But this is even a conservative estimate based on the low wages that are paid to underground workers. If they were legitimate workers paid by legitimate law-abiding companies, taxes would be much higher. “


• MONDAY: Illegal work costing millions of NJ in taxes

• TUESDAY: Falling wages – unions react

• WEDNESDAY: How NJ can fight the illegal underground economy

The report describes the underground construction economy as an umbrella term for business behaviors designed to evade mandatory payment of taxes, employment laws and regulations.

This would include misclassifying workers, who are sometimes listed as independent contractors rather than employees, so that they are treated as if they are self-employed.

Froonjian said that when companies misclassify workers in this way “they look like an employee in every way except the company does not pay their unemployment, their disability. They kind of treat them like they’re an entrepreneur.

In these cases, companies will also not pay compulsory social charges and family leave insurance contributions. They also may not pay a minimum wage.

The report states that other illegal business practices would include work that escapes the regulation of employment and labor law, particularly for day laborers who may be underpaid or who may work overtime and not be paid. This is sometimes called salary theft.

Another category of illegal business practices is cash work or barter, where workers are paid illegally. In these cases, no employee file is kept, so it is as if they had never been employed.

The report finds that New Jersey’s underground construction economy appears to have grown significantly in recent years.

The authors note that average hourly construction wages in New Jersey were higher than surrounding states and much of the country in 2007. But over the past eight years, hourly wages have fallen 7.6 percent . During the same period, wages rose in New York and Pennsylvania, although construction production in New Jersey was higher.

“It’s a big deal when 35,000 workers are employed by people who basically ignore the law,” Froonjian said.

The report notes that a dozen measures have been proposed to the state legislature on wages in force in recent years.

Conservative lawmakers believe the underground economy is to a large extent the result of excessive bureaucracy, while liberals accuse the underground economy of lax oversight and a lack of labor inspectors.

A Democratic proposal in Trenton would allow the labor commissioner to crack down on employers who do not pay current wages, increase fines and even lay criminal charges. A GOP bill would allow the governor to suspend the existing wage law. Most of these measures have not yet been the subject of committee hearings.

“It’s important to keep in mind that this affects working families in New Jersey,” Froonjian said. “I have spoken to a number of workers who say they are not getting the work they need to support their families. These are working families who are unable to compete and who are personally hurt.

You can contact reporter David Matthau at [email protected]

Bonny J. Streater

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