It was only a small victory, in the scheme of things, but Australia’s Fair Work Ombudsman used a Federal Court decision this week as an opportunity to talk very tough about the repercussions for employers who underpay their workers.

“Employers must recognise that significant consequences will follow when they knowingly flout the law,” Tuesday’s media release said, quoting acting head Kristen Hannah.

And although she wasn’t fooling anyone who actually knows the reality of wage theft in Australia – that most of it goes undetected and unpunished – she went on at some length with a great many more strong but hollow words.

“There is no place for the deliberate exploitation of vulnerable workers in Australian workplaces,” she said.

“We have no patience for business operators who fail to respect the law and ignore our advice, and the penalties handed down in this case reflect the seriousness with which such matters will be dealt.”

The case to which she referred involved two related companies that had operated a couple of 7-Eleven stores in Brisbane, which had dudded 21 employees of more than $31,000 in wages. The Federal Court had just imposed fines totalling more than $156,000 on them, and a further $36,559 on Jason Yuan, a director of both companies.

This was a good result, except for one thing: the Fair Work Ombudsman had first warned Yuan, who had a background in finance and banking, over incorrect payments to staff back in 2013, and had begun the proceedings against him after they caught him out again in September 2014.

By the time the slow wheels of justice ground out a penalty three-and-a-half costly years later – only a civil penalty, albeit a fairly substantial one – the two companies involved no longer operated the 7-Eleven stores and Yuan had moved on. As for the workers, 15 of the 21 had been on temporary visas, including student visas. We can’t be sure, but presumably most have returned to their home countries, having learnt a hard lesson about workplace exploitation in Australia.

The empirical evidence suggests that underpayment of wages and entitlements by employers – wage theft – is now the default business model in a range of industries.

While it is good that the $31,000 owed to those workers was recovered, hundreds of thousands of others had their entitlements stolen by unscrupulous employers while that recovery process was under way.

The reality is that for all the ombudsman’s tough talk about protecting vulnerable workers, and taking “the exploitation of young workers and visa holders particularly seriously”, they are fighting a losing battle. The empirical evidence suggests that underpayment of wages and entitlements by employers – wage theft – is now the default business model in a range of industries.

As with so many aspects of Australia’s growing economic inequality, much of the blame traces back to the Howard government, and its dismantling of the previous, relatively effective regime for enforcing employment rights. But there is more to it than that. In particular, it has to do with the bipartisan moves over the past couple of decades to change and dramatically enlarge Australia’s migration program.

“In the past the focus was on permanent migration and equal rights and equal enforceability of rights,” says Dr Stephen Clibborn, a specialist in work and labour market regulation at the University of Sydney Business School.

Now, though, the migration program is mostly about importing people on temporary visas with tightly constrained work rights attached.

Their numbers are staggering. There are some 1.4 million people in Australia on some kind of temporary visa, with work rights. Although not all of them exercise those rights, temporary migrants now comprise up to 11 per cent of the Australian labour market, according to expert but non-official estimates. And while much attention in recent years has focused on workers on temporary skill shortage visas – formerly known as 457 visas until they were rebadged last year – they make up a relatively small percentage of the total. Wage theft is more common among those on working holiday visas, known as backpacker visas, and the 800,000-odd overseas students in Australia.

These are Australia’s most vulnerable workers, a huge pool of people ripe for exploitation. As ACTU Secretary Sally McManus observes: “There’s no worker more insecure than a worker on a work visa.”

If you cross your employer, she says, “not only could you lose your job, you could be deported”.

As with any illegal activity, exact numbers on the extent of wage theft from temporary workers are hard to ascertain. But such evidence as there is suggests they are being robbed on a truly epic scale.

The most comprehensive study to date, of more than 4300 temporary migrants from more than 100 different source countries, working in a range of jobs across all Australian states and territories, and released late last year, found about half were paid less than the statutory minimum wage. Forty-six per cent of those surveyed were paid less than $15 per hour, and 30 per cent earned $12 or less.

“This is approximately half the minimum wage for a casual employee in many of the jobs in which temporary migrants work,” wrote the report’s authors, Laurie Berg and Bassina Farbenblum, respectively from the law faculties of the University of Technology Sydney and University of New South Wales.

Underpayment, they found, was widespread across a range of industries, but was particularly prevalent in cafes, restaurants and takeaways. The most exploitative of all was farm work, where about 15 per cent of fruit and vegetable pickers were paid less than $5 an hour.

The worst cheated, they found, were those from non-English speaking backgrounds. More than three-quarters of Chinese, Taiwanese and Vietnamese survey participants earned less than the legal minimum wage, compared with 35–41 per cent of American, Irish and British participants.

The litany of inequity was extensive. About 5 per cent of those surveyed had their passports taken by their employers or accommodation providers. Another 5 per cent paid upfront “deposits” to secure their jobs. Four per cent reported that their employers required them to pay money back, in cash, out of their wages.

“The study confirms that wage theft is endemic among international students, backpackers and other temporary migrants in Australia,” the authors wrote. “For a substantial number of temporary migrants, it is also severe.”

It seems an understatement. Assuming their findings hold true for the migrant worker community at large – and their sample was carefully weighted to be representative – we’re talking around a half million temporary workers being ripped off to the tune of many billions of dollars.

It’s not the fault of the Fair Work Ombudsman, says Stephen Clibborn.

“They were never set up to succeed,” he says. “They are woefully under-resourced. They have roughly 250 inspectors to cover over two million workplaces and 11 million workers. And they can litigate only 50 to 55 cases per year.

“The FWO does the best it can with limited resources. They enter a lot of enforceable undertakings [that is, agreements with employers who have been found to be in breach of employment conditions, not to pursue legal action if they fix the problem].

“And they use strategic enforcement, identifying areas of non-compliance and focusing their efforts there.”

The ombudsman does a lot of outreach aimed at the workers themselves. It offers, for example, a free phone interpreter service, an online translator that works in 40 languages, an anonymous report tool that works in 16 languages, a “record my hours” app and a range of videos and other material intended to inform migrant workers of their rights.

But well intentioned as these measures are, they miss a key point. The research shows most of these workers – 73 per cent of overseas students and 78 per cent of backpackers – know they are being short-changed. They simply feel powerless to do anything about it.

The problem is made more difficult by the fact that the wage-thieving employers often come from the same migrant groups as their workers, a phenomenon researchers call “co-cultural exploitation”.

This reality was driven home only last month, when the ombudsman released details of one of those targeted enforcement actions, undertaken in the heavily migrant-populated Western Sydney suburbs of Cabramatta, Guildford, Mount Druitt, Fairfield and Merrylands. Of 200 businesses audited, nearly two thirds were found to be in breach of workplace laws. Inspectors issued 26 formal cautions, 20 infringement notices and 11 compliance notices, and recovered almost $370,000 for 199 workers.

This week, the ombudsman announced that it had begun auditing 1000 randomly selected businesses across Australia, checking time sheets and pay records “with a focus given to sectors where large numbers of vulnerable workers, such as casuals, migrants and students, are employed”.

Again, that’s a good thing, as far as it goes, but it barely scratches the surface.

Another example: a couple of years ago, Clibborn surveyed 1433 student visa holders, focusing on students studying management and commerce – the chosen field of more than half of tertiary students – and Chinese nationals – by far the largest group of students.

Close to three quarters of those Chinese students were paid less than the minimum wage and 43 per cent were paid $12 an hour or less.

The survey respondents working as waitstaff were all paid less than the relevant wage for a casual worker, of $23.09 an hour. To repeat, all of them. 100 per cent. The lowest paid of them got $8 an hour.

The education of foreign students is now Australia’s third biggest “export” industry, behind iron ore and coal. It was worth $28 billion last year. This level of wage theft and mistreatment undermines that industry.

Further, the underpayment of migrant workers serves to drive down wages for other workers, too.

“I’ve seen evidence in my research of international students and local students at university in Sydney,” Clibborn says.

“Close to 100 per cent of international students were underpaid in their retail and hospitality jobs, but so were 40 to 50 per cent of local students.

“Of those working as waiters and shop assistants, the going rate for international students was about $10-15 per hour. For local, it was more like $20-25, which appears to reflect different levels of vulnerability, but vulnerability nonetheless. It spills from one vulnerable group to the next.

“Another aspect that hasn’t been sufficiently exposed is the burden to compliant businesses, who find it increasingly tough to operate in competition with those that underpay their workers.

“This is something I would have thought employer associations would be beating the drum about, but I haven’t seen it.

“If I was running a cafe and paying award wages, I’d have a big sign out the front advertising that.”

You might think that Australia’s enormous financial services industry should be concerned. One of the most prevalent ways in which workers – and not only migrant workers – are cheated is through the non-payment of superannuation contributions. Last August, the tax office estimated the shortfall in super payments by employers at $17 billion over an eight-year period. That’s a lot of fees uncharged.

Then there is the cost to us all in revenue forgone by government. According to Berg and Farbenblum, close to half of all migrant workers were paid cash in hand, meaning no tax was paid.

I have yet to see any calculations of the revenue gain if these workers were properly paid and taxed on their earnings, but it would no doubt be substantial.

As Clibborn writes in one of his many studies of the issue: “The problem of employer underpayment of temporary migrant workers’ wages is one that the Australian government appears to be unwilling or unable to solve.”

He dismisses last year’s amendments by the Turnbull government to the Fair Work Act, which significantly increased the fines for wage theft, as “merely tinkering around the edges”. He said the changes treated the problem as a “public relations challenge: doing just enough to placate the media and the public so as to quell any outrage that might result in lost votes”.

Increasing civil penalties is all very well, but unscrupulous employers will take the odds, if there remains little chance of being caught.

For its part, the federal Labor opposition would increase the fines for unscrupulous employers even more.

In a statement to The Saturday Paper, Labor’s shadow minister for Employment and Workplace Relations, Brendan O’Connor, reaffirmed party policy to “increase civil penalties for underpayment to three times the amount owed or $216,000 (1200 penalty units) for an individual and $1,080,000 (6000 penalty units) for a body corporate, whichever is the highest”.

He said Labor was committed to ensuring the ombudsman was “properly funded and able to focus on successfully prosecuting serious, systemic cases of exploitation”.

But except in extreme circumstances, such as human trafficking, Labor had no desire to start jailing people. O’Connor’s view was that “industrial relations should remain in the civil law realm”.

Others on his side of politics have a different view. The former South Australian Labor government took a policy to last month’s election to criminalise serious wage theft, and the New South Wales Opposition leader, Luke Foley, has flagged an intention to do likewise, if Labor wins the next election there.

There does seem to be certain logic to such proposals. After all, if an employee steals from the boss, he or she is criminally liable. Why should the same not apply in reverse?

Perhaps surprisingly, Sally McManus and the ACTU are not pushing the idea.

“We’re not opposed to those pushes for criminal penalties,” she tells The Saturday Paper. “But the most important thing is that people get their money. The penalty is a secondary consideration.”

The core of the problem, she says, is that the current system is set up to be slow and inefficient, because of two significant changes made by the Howard government.

The first was the abolition of the system of state industrial courts.

“They were quick and easy and didn’t cost anything, and expert. You could take a case to them and you didn’t have to be a lawyer. They could make an order then and there. Done and dusted.”

Now, instead of specialist courts, she says, under the “fair work” regime, “it takes forever and it’s expensive and you have to engage lawyers – you’ve got to take an action in the federal court to get your money … and face a judge who might not really know what an award is”.

The second change is about union access. It used to be easy for unions to inspect wage records. “There were about 5000 union officials around the country and we could go into a workplace and check pay records to ensure people were correctly paid. The unions did that. I used to do that all the time.”

But the Howard government put severe constraints on that right of employee representatives to check the books to make sure their people were being properly paid.

“So now, instead of 5000 people checking, you’ve got a couple of hundred,” McManus says.

The ACTU boss agrees with Clibborn, and a great wealth of psychological research: it is not the magnitude of the penalty that deters potential wrongdoers, but the likelihood of getting caught.

Ultimately, the only real solution to the problem is greater scrutiny. And while most of the experts agree that a co-regulation scheme involving unions and government agents is preferable, the chances of any such thing happening under this anti-union, anti-worker government is remote.

An under-resourced, slow, weak regime for protecting vulnerable workers is exactly what they want. Largely, because it’s what business wants.