Profiting from the Shadows

The construction industry’s reliance on labor brokers provides cover for do-nothing politicians while making taxpayers subsidize illegal immigration.

The construction industry’s quietest profit center is built on a network of shadowy figures known as labor brokers. These ephemeral middlemen allow construction contractors to push risk and responsibility down to the people doing the work on the front lines—who have the least power to resist.

I discussed labor brokers in Deconstructed, and the problem has only grown in the six years since. D.W. Gibson, author of 14 Miles, has provided a deep dive into this murky world in the December issue of The New Republic.

The labor broker model exacerbates our broken immigration system. It provides the fuel to attract low-cost workers and encourages the very influx of undocumented immigrants that our political leaders vow to halt. It’s not just that the system hides costs and reduces quality, it also provides cover for political inaction. While we argue over protests, Gestapo tactics, and American citizens killed or deported by poorly trained paramilitary troops, this economic engine chugs along, ignored in the shadows. It’s a system that helps big companies avoid taxes, strains our health care system, and limits the broader economic benefit of workers whose pay is kept in the shadows. Everyone, from the most virulent MAGA supporter to the most strident left-wing activists, foots the bill.

To understand how this unseen employment network functions, consider a big construction job. On paper, the hiring chain looks straightforward: developer, general contractor, subcontractor. In practice, there’s a hidden tier underneath—labor brokers and their disposable business entities known as limited liability companies, or LLCs. It’s these LLCs that find, hire and pay workers.

A broker “company” may be nothing more than a person with a pickup and a laptop, incorporating an LLC from a kitchen table and opening a bank account that he will empty at the check-cashing window as soon as the subcontractor’s check to the broker clears. The developer pays the general contractor, the general contractor pays the sub, the sub pays the broker, the broker takes a cut and hands out cash to workers—if he pays at all. The money is clean when it leaves the top of the chain and opaque by the time it reaches the people actually hanging drywall or painting apartments.

That opacity is the point. It lets reputable builders and brands with glossy websites claim they don’t know much about the guy who hires “his own crew,” even when all the workers show up in the sub’s t‑shirts and follow the sub foreman’s orders.

And it ensures that many, if not most, of the laborers that brokers hire are undocumented immigrants. Few native-born workers would consider taking jobs under such conditions, even if they didn’t mind the long hours and backbreaking work.

The model works because it preys on workers who can’t afford to walk away. Many immigrants arrive already in debt—to the coyote who got them across the border, to the broker who fronted rent or gas money, to the cousin who vouched for them. When a broker starts skimming their wages, they’re not negotiating over a bonus; they’re choosing between food, rent, and fuel to get back to the job site.

As Gibson writes:

In Ann Arbor, Michigan, a representative from the carpenters’ union recorded a video of himself talking to a worker named Luis. He was working on Verve, a high-profile 217-unit apartment building. In the video, Luis tells the union rep that he’s originally from Zacatecas, Mexico, and that he owes a $7,000 fee to the person who sneaked him across the southern border. The labor broker who brought him onto the job, whom Luis identifies as Rolando, deducts repayment of this fee in installments. After the fee is paid down, there’s $230 left for Luis in return for his 40-hour week, which works out to $5.75 an hour—below federal minimum wage.

“He told us most of the guys on the job were in the same situation,” said Juan Ortiz, one of the organizers from the carpenters’ union who spoke with Luis. “And this ain’t the first time. We’ve heard it over and over again. Once they get here, they’re pretty much owned by that broker until the fee is paid off. It’s gut-wrenching what we see all the time. They don’t even have enough money for gas or food.”

In the most brazen cases, unpaid wages morph into a different kind of proposition: if the broker can’t—or won’t—pay you what he promised, maybe he can hand you a pound of cocaine and suggest you work off the debt in a more lucrative line of business. For workers without legal status, that isn’t an offer; it’s a trap. Refuse and you may never see your back pay. Accept and you risk prison or deportation. Either way, the broker keeps his margin.

Layered on top of this is immigration enforcement policy that effectively arms the broker with a more powerful threat than a bounced check. If complaining about wage theft might bring Immigration and Customs Enforcement (ICE) to your apartment door, silence becomes a form of survival. The result is a workforce that lives in the shadows so completely that even federal investigators sometimes can’t find the broker long enough to serve him with a complaint.

Misclassification as Business Model

Financially, labor brokers are a tax and insurance arbitrage machine. Their profits come less from productivity than from classification. By calling workers “independent contractors” instead of employees and routing payments through thinly capitalized LLCs, they make payroll taxes, workers’ comp premiums, unemployment insurance, and paid leave someone else’s problem—or no one’s.

The Century Foundation estimates that between 1.1 million and 2.1 million construction workers nationwide are misclassified or paid off the books, costing workers more than $12 billion a year in lost wages and benefits and taxpayers between $5 billion and $10 billion annually. The findings are reflected in examples for major cities where investigators have found companies that use brokers reporting a handful of employees while cashing checks large enough to support entire crews. It’s a sign that most of the crews likely are misclassified as independent contractors, and thus, essentially off the books.

Studies have found that misclassifying workers can shave as much as 20 percent off labor costs, enough to win bids against competitors who carry full payroll and insurance. In an industry where margins are thin and volume is paramount, leaning on labor brokers becomes an effective competitive strategy. The broker structure gives builders and general contractors plausible deniability and allows subs to meet the low bid with a nod and a wink.

Insurance follows the same pattern. General contractors treat brokers’ certificates of coverage as proof that the risks are handled even if they aren’t. The certificate only verifies that the broker has some kind of coverage, not that they have enough coverage for a specific job. A one‑page certificate looks the same whether it covers a crew of four or a job that should have fifty people tied off on scaffolds.

Gibson described the ease with which a shell company in Florida acquired inadequate coverage:

[The] company claimed $43,200 in payroll for four workers. With the crew of four, over a yearlong period that same company cashed more than $11 million in checks and was issued 450 certificates of insurance. How does that much money get earned and how do that many certificates of insurance get issued for a company with a crew of four?

Skipping out on legitimate insurance policies lets labor brokers keep more money in their pockets. The risk is worth it because the workforce is too fearful to report anything or even go to the hospital if they get hurt.

The lack of coverage becomes an issue only when someone falls off the scaffolding—and by then, the LLC that “employed” him may already be dissolved.

On construction company balance sheets, brokered workers are ghosts. They don’t show up on certified payrolls, they don’t complete I‑9 employment forms, and they often “sign in” only through a WhatsApp message thread that evaporates as soon as the job wraps. On one Manhattan site, union reps counted fifteen workers in a subcontractor’s shirts, while the company’s internal records listed just eight, Gibson reported. The missing names represent not just hidden wages but unpaid taxes, uninsured injuries, and future Social Security benefits that the workers will never earn or collect.

The invisible costs don’t vanish; they migrate. When an uninsured worker is told to “just go to the ER” after an on‑the‑job injury, the bill lands with taxpayers and hospital charity funds. Misclassified workers can’t access unemployment benefits or paid sick leave, leaving them and their families to rely on already strained safety‑net programs—funded, ironically, by the same tax base the broker model erodes.

Even public projects aren’t immune. When a subsidized development uses brokers, taxpayers underwrite the front end with tax credits to lure a business to a community and the back end as payroll taxes and workers’ comp contributions disappear into the check‑cashing window. The structure turns public subsidy into a lever for private arbitrage.

Why Fix What’s Broken?

Regulators are aware of the misclassification problem. The Treasury Department’s Financial Crimes Enforcement Network has issued guidance highlighting “large or unusual volumes of cash withdrawals” and accounts with “minimal to no tax‑ or payroll‑related payments” as red flags for payroll tax evasion schemes tied to shell companies and labor brokers. District attorneys have shown that, with enough subpoenas and a few well‑placed wiretaps, they can unravel the tangle of LLCs and win convictions for payroll and insurance fraud. In one case, prosecutors in the Manhattan district attorney’s office investigated JM3, a large nonunion drywall and carpentry company, and a network of shell LLCs it used to route payroll and insurance transactions. Assistant D.A. James Hanley told Gibson that they “peeled back the layers of LLCs” that passed checks through several entities before cashing them, establishing that these companies existed only on paper to funnel money to labor brokers. By obtaining warrants for payroll records and internal emails, and especially by using wiretaps capturing conversations about hiding injuries and falsifying explanations for payments, they were able to tie the LLC structure back to the real operators.

That work culminated in JM3 entering a guilty plea in January 2024, a rare instance in which authorities both tracked the operators behind the shell companies and secured a criminal outcome, rather than watching the LLCs simply dissolve and reappear under new names.

Such cases are expensive to investigate and politically risky to pursue, so they tend to be brought only after the fraud is too big to ignore. Every serious fix—mandating certified payrolls on private projects, tightening verification of insurance certificates with QR codes, requiring subs to disclose which “independent” crews they hire—comes with a price tag that developers are quick to translate into fewer housing units or delayed infrastructure.

In states with weak worker protections, the resistance is even stronger. When city councils try to hold general contractors responsible for what happens in their subs’ labor supply chains, state legislatures step in to strip local authority before the ink is dry. The message is clear: speed and volume of construction matters more than the number of broken bodies and missing paychecks it takes to get a job done.

Gibson cites a move by the Nashville City Council to pass an ordinance holding general contractors accountable for their subcontractors’ wage and safety violations. Even as the council was drafting the measure, the state legislature passed a bill overriding local governments’ ability to mandate disclosures from the construction industry.

Adding to the problem is a political climate that rewards images of heavily armed masked enforcers patrolling streets of American cities rather than quiet enforcement of wage and tax laws or subpoenaing bank records. Arresting workers suspected of being undocumented gets more social media views and feeds political fervor on both sides.

All this plays into the brokers’ hands. The people who could testify against them are deported, while their own LLCs quietly dissolve and reappear under new names. In a case in Minnesota cited by Gibson, a labor broker named Eric Cruz controlled the fates of at least 100 workers, but even after local unions filed wage theft complaints against him, he evaded law enforcement. Unlike the JM3 case in New York, when investigators looked into Cruz’s LLC, it was gone. Establishing an LLC only takes a few minutes online, and while exact fees vary between states, it’s never more than a few hundred dollars. Ditching one of these shell companies is easy. So is starting a new one. And operating with such a shadowy business model gives labor brokers the cover to introduce illegal enterprises, such as drug dealing, into their work.

The construction boom in Texas and elsewhere is often celebrated as a miracle of market efficiency. But under the hood of the supposed Texas Miracle is an elaborate system for shifting risk, hiding profits behind shell corporations, and treating the people who raise our skylines as line items to be erased as soon as the concrete sets.

As one Texas builder told Gibson: “All that matters is we are going to build these homes cheaper than anybody in the nation. Everyone loves to talk about the ‘Texas Miracle,’ . . . but they don’t want to admit it’s the labor-broker model that makes it possible. I’m talking about guys who have made a billion dollars off the back of these workers.”

Markets do what we design them to do. The labor‑broker model is designed to benefit companies that treat workers as expendable and compliance as optional. As long as the system rewards savings regardless of the cost, the industry’s invisible villains will keep cashing their checks, the immigration process will remain broken, and the rest of us will keep paying the price.