Houston construction leader calls for changes to save the American middle class: Part 1
I love the construction industry and I speak from experience when telling you it has to be saved from itself. Since 1938, our family business has helped build the monuments of this city and this state. More importantly, our companies – like many others over the past 75 years – have helped tens of thousands of hard-working Americans enjoy an honorable blue collar, middle class standard of living. But, now our middle class is threatened like never before.
When I graduated from Texas A&M in 1969, after serving my active duty in the Marine Corps Reserves, I joined the local carpenters union as a drywall mechanic. Wages and benefits were very good and it was indeed a quality, middle class occupation. The non-union tradespeople enjoyed the same kind of lifestyle. We all received good hourly pay, overtime, worker’s compensation insurance protection and had employment taxes deducted and paid. There was a bond between company and worker. We worked hard to keep our jobs secure. If our company did well, we would be provided for. And, we were.
Fast forward to today and my, how things have changed.
Many construction companies now look for ways to avoid having employees altogether. They don’t want a bond between company and worker. The truth is they want as few strings as possible because having employees on the books means having to shell out for hourly pay, overtime, benefits, workers’ comp, payroll taxes, compliance with employment laws and the possibility of being audited by the federal government to verify the immigration status of workers.
So what do they do?
In our industry, as in others, many companies “misclassify” their employees, which means they pretend their workers are “independent subcontractors” when by law they meet the definition of an employee. This practice allows those companies to get a pass on all the obligations of an employer, most of which protect the worker. Without employees, there are no minimum wage and overtime laws to abide by. There are no benefits like medical insurance, vacation and paid holidays. There is no workers’ compensation insurance or OSHA jurisdiction to protect the worker. Taxes on labor are not withheld and sent to our federal government. The unemployment trust fund in Texas is dwindling as a direct result. And now that the Affordable Care Act is the law of the land, its employer mandates give companies even more incentive to unload their workers into the underground economy.
As taxpayers, we all suffer while the working man and woman takes the brunt of it.
A bipartisan Texas House Committee report recently said “A misclassifying employer compromises free markets through unfair competition and promulgates lawlessness.” The panel noted that the Texas Workforce Commission found more than 60,000 workers had been misclassified in 2013, resulting in $8.6 million in unpaid taxes. I believe those numbers are just the tip of the iceberg. Keep in mind that the Workforce Commission can only identify a portion of what’s really happening because the agency has limited resources.
It is already illegal to misclassify employees, but companies do it anyway because government enforcement and self-policing by the industry are sorely missing.
The elephant in the room is that many of these same workers lack legal status. Most began working under a traditional employer-employee relationship. But as immigration enforcement actions, which came as raids under President Bush and now I-9 audits under President Obama, removed them from the rolls of legitimate employers, they migrated to the independent contractor model.
You may think that when immigration audits identify illegal workers they are then deported. That’s not true at all. The employer is simply required to terminate them. It seems they are rarely deported in those circumstances. So, many end up working for unscrupulous employers who call them independent contractors knowing the workers are unlikely to seek legal recourse.
Contractors who abide by the law cannot compete against those who use the independent contractor business model. Those who cheat on their taxes in this fashion can underbid ethical contractors by as much as about 35 percent. While the cheaters get the contracts, middle class jobs are falling by the wayside.
There is no doubt the federal government , including lawmakers from both parties, has failed us so far on immigration reform and other underlying issues facing our shrinking middle class. But there is time to turn the corner. Government action, however, is not sufficient. Tomorrow I will lay out not only what our elected leaders must do but I’ll also tell you about private sector solutions taking root right here in Houston.
Houston construction leader calls for changes to save the American middle class: Part 2
Saving the American middle class is a tall order but I believe firmly that it can be done. Yesterday, I explained how hundreds of thousands of undocumented workers in our city are simultaneously being exploited while propping up the so-called “Texas Miracle.” Jobs that could create a middle class way of life for many of our youth are instead held by someone being paid off the books and avoiding payroll taxes while those costs are shifted to all other taxpayers.
The undocumented should not be blamed. They came to the United States to fill jobs that would improve their lives and provide for their families. When our economy was booming, they provided the labor that was otherwise unavailable. But during the economic meltdown of 2008, their wages dropped as did the wages of legal workers who were competing for the same jobs. Now that the economy is improving, those wages are not rising. That’s because of the supply of labor coming into Texas from all over the United States. Many have fled states like Georgia, Mississippi, and Arizona where legislatures have passed harsh immigration crackdowns. Texas lawmakers have not made that mistake. So, immigrant workers don’t leave the US, they simply come to work in Texas.
I agree with the Chronicle’s Editorial Board when they said on January 23 that President Obama’s executive order is a great opportunity for workers in many industries, especially construction, to get out of the shadows, get right with the law, and become taxpaying members of society. Instead of being paid in cash or off payrolls with no social security taxes withheld, those who apply and meet strict requirements will be given an identity card and can start to pay their fair share into the system.
Will it work? The Chronicle got it right in saying this is a matter of trust. Will the government be able to follow through on the president’s promise of legal status and decreased deportations? It will be a tough sell because of the challenges in our courts and rhetoric from certain elected leaders engaged in the politics of fear.
Much of that is simply theater. Here in the real world, we can start taking steps to create good careers. The president’s actions are necessary but the private sector should act as well to address our workforce needs.
The biggest obstacle, perhaps, is an unwillingness of some employers to create hourly jobs that pay well and take into consideration the taxes that should be paid. It is difficult to reverse the trend when construction jobs are so often bid with cheap labor rates based on a workforce being paid off the books.
There is a solution taking hold in our city. A group of dedicated facility owners and construction companies have been quietly developing a program called the Construction Career Collaborative, or C3. It’s a program modeled after the Green Building movement, which as you may know is all about building sustainable structures for the future. C3, too, is all about building a sustainable labor force for our future.
A main component of C3 is an hourly wage rate with applicable taxes. Also safety training and workmen’s compensation insurance are required. C3 is a voluntary program that enlightened owners like Texas Children’s Hospital, MD Anderson, and the Archdiocese of Galveston–Houston have adopted. They require all workers on their jobs to be treated as employees, not independent subcontractors. As a next step, the City of Houston should demand that all projects involving any tax dollars should adhere to C3 standards as well. I would urge you to write to your city councilmember and the mayor and ask that they adopt the principles of the Construction Career Collaborative for projects throughout the city.
Our community must work together to attract young men and women back into the skilled trades. We have neglected one of our largest assets because of the availability of cheap immigrant labor. It’s time to now to re-create middle class opportunities for our kids with good jobs that pay by the hour and create a career path.
Stan Marek is president and CEO of the Marek Family of Companies, a specialty subcontractor based in Houston.