The Workers' Comp Dimension of the Illegal Worker Controversy

Saturday, July 29, 2006 | 1

By Peter Rousmaniere

The political uproar about illegal immigrants continues, with worsening implications for employers of illegal workers and the workers compensation systems in many states. This article examines the connections between the rise of the illegal worker population, stresses on workers comp systems, and what employers and insurers can do to reduce these stresses.

I am a twenty year veteran of the workers comp system, working with insurers, employers and service vendors on improving work safety and claims outcomes. Over the past five years I have tracked the effect on the workers comp system as illegal workers began to incur more and more work injuries.

In late 2005 I personally visited and met with people in ten states to ascertain what if any bearing the illegal working population has on the functioning of workers comp systems. I came away with an impression that illegal worker penetration has weakened work safety and incented employer to commit workers comp insurance fraud. Except for islands of well thought out regulatory action, I found that state workers comp regulators are generally confused, stymied, and in some instances indifferent to these problems. I continue to monitor the situation in my blog, www.workingimmigrants.com.

The workers comp system, and OSHA's work safety program, were never designed to anticipate and address the special problems arising out of millions of illegal workers. Approaching these problems as a straightforward enforcement task will fail because the problems overwhelm the available resources, and because the illegal worker population is too deeply entrenched into our labor markets.

It is prudent to assume that the huge number of illegal workers - about 7.5 million - will not diminish significantly, regardless of government policy. Many employers and industries depend on large numbers of low skilled immigrant workers - and a good half of these are illegally here.

From among all the possible scenarios for the future, a well written and implemented guest worker program backed up by a functional system of foreign worker identification is the single best way to contain not just workers comp problems but labor relations problems as a whole.

Employers and insurers are paying a price for Congress' failure to pass a reform package in three ways. First, misbehaving employers who hire a lot of illegal immigrants are tempted to cheat on their workers comp insurance, hurting insurers and lowering their cost of business relative to honest employers.

Second, the presence of a large number of illegal workers in an industry tends to lower the standards of safety observed in that industry - sooner or later, poor safety practices among some employers create a burden on other, more diligent employers. There are no easy fixes. For example, to correct the higher fatality rate of illegal workers in the construction industry may require up to ten discreet interventions at the employer, insurer and regulatory levels.

Third, workers comp regulatory resources in a state are diverted to cope with employer abuses and work safety deterioration, instead of focusing on more constructive tasks.

Most states either tacitly or by court precedent extend workers comp rights to illegal workers. The reasoning behind this policy is three fold. First, work status is a federal, not a state concern, and states by implication are not well equipped to enforce immigrant status related laws. Second, were work safety and workers comp benefits not to extend to illegal workers, it is widely thought that a huge moral hazard will be created causing many employers to misbehave. Both legal and illegal workers would suffer.

Moreover, if work safety and workers comp professionals were asked or told to be an enforcement arm of federal immigration law, it is a sure thing that they will make many mistakes, some of which will come back to haunt in the form of liability suits.

How the problems grew

The illegal worker population has roughly doubled since the mid 1990s to 7.5 million but the stresses on the workers comp system in some states have grown geometrically. This is because most of the recent growth of illegal worker populations has been in broad sectors of the economy, and in relatively high risk work. At some point a critical mass is passed beyond which problems tend to multiply in impact.

Back in 1995, the dominant workplaces of illegal workers were either in agriculture or in large, rural factories for meat processing and carpet making. Thus these workers were relatively isolated in many respects, and their work injury issues relatively hidden from view.

The latter half of the 1990s ushered in the residential housing boom. This, and a natural tendency of workers to seek higher paying jobs in metropolitan areas, triggered a huge expansion of more widely visible employment of illegal workers in construction, healthcare, and hospitality other urban-centered sectors.

And these key industries, well covered by workers comp laws and in some instance collective bargaining, began actively to recruit large numbers of Hispanic workers, roughly half of whom were illegally in the United States.

About half of illegal workers are in formal employment and are paying social security taxes, which go into a Social Security suspense file when the social security number is unverifiable. The other half are paid under the table in cash.

About 40% of all illegal workers today are in occupations in which these workers account for at least 15% of total employment in that occupation. These include construction labor (25%), cooks (20%). Maids and housecleaners (22%), and grounds maintenance (25%). Among roofers, 29% of the total workforce is estimated to be illegal workers. (These data from the Pew Hispanic Center.)

Worsening workers comp picture

Only a small percentage of illegal Hispanic workers speak English well, and their social networks are often limited to their own community. They usually do not understand how the American medical system works. These factors have created a serious problem with safety instruction, proper medical care post injury, and simply understanding the laws and conventions within the workers comp system. Close to 200 ethnic-oriented community centers have been erected in the past decade in part to provide needed technical advice.

Then there are employer workers comp abuses, the most serious one is to steer the work injured illegal workers away from making a workers comp claim. Another abuse is to either skip paying any workers comp insurance or - more commonly - to effectively split employment between those workers who are covered and those workers who are not covered and kept in the dark.

High workers comp insurances rates for the affected industries have certainly been an incentive for employers to commit insurance fraud.

Regulators in California, Florida, Massachusetts and other states came to realize they had a nasty employer misbehavior problem on their hands and in recent years have taken steps to combat employer insurance fraud while educating workers on their workers comp rights. These initiatives place state regulators in the position of attempting to protect the workers comp rights of illegal workers.

Steps employers and insurers can take At the state level, employers and insurers can take more measures to contain the problem of misbehaving employers. This takes care, persistence and ingenuity: blunt law enforcement will not do the job. One step, which from my experience only California is taking, is to forge informal dialog with community groups which may know more about misbehaving employers - who they are, how they operate.

These community groups are surprisingly sophisticated in spotting unethical and illegal employer labor practices. These groups will insist that any labor law (including workers comp) enforcement be completely separated from immigrant law enforcement.

Another step is for employers to insist on more diligent selection of suppliers with regard to their hiring practices and their work safety and workers comp practices if they hire a lot of low wage immigrants.

It is important that the various workers comp advisory councils, business associations in pertinent industries, etc, recognize the scope of the work safety and workers comp problems and pay attention to them.

A guest worker program

As noted above, many employers and industries depend on large numbers of low skilled immigrant workers. They have forged their own lobbying effort in Washington to normalize the legal status of their workforces. These employers and industries want to hire immigrants and they want to do away with the legal liabilities they currently face. While work safety laws and workers comp laws may be often hidden from sight, these laws will be easier to apply if and when the legal status of workers were normalized.

The magic bullet these employers and industries seek is a guest worker program such as embedded in the Senate's immigration bill but missing from the House version. Were a guest worker program passed, the enforcement of work safety and workers comp laws at the state levels would be much easier because employers can be held more accountable, and there will be much less incentive to keep things in the dark.

My personal preference is timely passage of the Senate bill.

Don't delay

Nothing is gained by procrastination. Insurers and good employers deserve to have these problems contained and it is simply good public policy to do so.

Peter Rousmaniere is a Woodstock, VT, based risk and insurance professional. He holds a MBA from Harvard University and had worked for numerous insurers and other workers comp related organizations. He maintains a blog, www.workingimmigrants.com, as well as his own professional website, www.peterrousmaniere.com. He can be emailed at pfr@rousmaniere.com.

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