Wage theft: LSD-BG reform 2021 weakened deterrent effect of underpayment penalties

Wage theft not only harms the directly affected employees, who are deprived of their wages to which they are entitled under the collective agreement. It also affects the entire economy, as companies that adhere to the rules are at a competitive disadvantage compared to unfair competitors.

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 level 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 from 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) in2021 showed that the deterrent effect of the LSD-BG penalties has decreased, especially in the case of several underpaid employees.

You can find the detailed results in the research report.