Wage Theft: LSD-BG Reform 2021 Weakened Deterrent Effect of Underpayment Penalties

Wage theft not only harms employees directly affected through deprivation of their entitled wages under collective agreements. The entire economy is affected, as companies adhering to the laws compared to unfair competitors are at a competitive disadvantage.

Whether penalties have a deterrent effect depends on several factors: the intensity of inspections (the risk of detection), the actual enforceability of the penalties and the severity of the sentence. The latter was examined on behalf of the Chamber of Labour Vienna in a new analysis on the basis of legally-binding criminal rulings in the construction sector in 2020 and 2022.

A deterrent effect of penalties was assumed if the extent of the penalties exceeded the cost advantages achieved through wage theft. Based on this assumption, the comparison of legally-binding criminal rulings before and after the reform of the Anti-Wage and Social Dumping Act (LSD-BG) in 2021 showed that the deterrent effect of the LSD-BG penalties has decreased, especially in several cases of underpaid employees.

You can find the detailed results in this research report.