The Building Tradesman Newspaper

Friday, July 24, 2015

'Bad bargain' awaits state's taxpayers if repeal is successful

By The Building Tradesman



By Frank Manzo IV

Public policy choices have consequences.

Some can facilitate middle class job creation, robust economic growth, a higher skilled workforce and balanced government budgets. Others can have just the opposite effect.

To get it right, it is critical for lawmakers and the voting public to examine the facts, and make the most informed decisions possible, free of ideological bias and special interest agendas.

Nowhere is such an approach more critical than right now in the debate over Michigan's prevailing wage law — with Michigan Gov. Rick Snyder and 60 percent of registered voters in support of maintaining the standard, while a newly formed Political Action Committee circulates a petition with hopes of forcing repeal.

There is much we already know about prevailing wage, which establishes the standard pay rate for the professionals who build our public schools, bridges and other public facilities. Long supported by leaders in both political parties, these laws were designed to promote local hiring and high quality workmanship, support the apprenticeship programs needed to train skilled craftspeople and ensure a level playing field for Michigan based businesses competing against out of state contractors on publicly funded construction projects.

Decades of peer-reviewed research has already examined the impact of prevailing wage on project costs, workplace safety and poverty, among other issues. They have concluded prevailing wage to be cost neutral, while reducing both the risk of worksite injuries and reliance on taxpayer funded public assistance programs.

To be fair, Michigan didn't need research to confirm prevailing wage's cost-neutrality, since it enacted a short-term repeal in the 1990s and saw no statistically significant cost savings first hand.

But, up until now, little research has been done on the overall impact these policies have on the economy as a whole. So together with Colorado State University Economist Kevin Duncan and leading Construction Industry Research organization Smart Cities Prevail, the Midwest Economic Policy Institute recently conducted a study to analyze what would happen to Michigan's economy if prevailing wage were repealed.

Our study used Economic Census data to compare the construction industries of states with prevailing wage standards and those without. This comparison revealed important differences, not just in wages but in-state contracting rates, worksite productivity and spending patterns.

We then utilized industry standard IMPLAN software to model the economic impact of Michigan's proposed repeal. The results were compelling.

If prevailing wage is repealed, Michigan can expect to lose over 11,300 jobs across all sectors of the economy. It will also see a reduction in economic output of $1.7 billion, a loss of $28 million in state and local tax revenue and the loss of nearly $700 million in construction investments to other states every year.

The losses are a result not just of lower wages, but the fact the repeal would mean more public works contracts will go to out-of-state firms. Less spending by Michiganders will ripple throughout the economy, eliminating jobs, reducing sales and property tax revenues and suppressing overall economic output in the process.

Our analysis also shows that the "savings" repeal proponents promise from lower wages will be entirely offset by an 11-12 percent reduction in workforce productivity and a dramatic increase in spending on materials, fuels and other services.

All of which brings us back to the fact that policy choices have consequences. And in the case of prevailing wage, the data tells us that the choice is clear: repeal means fewer jobs, a slower economy, more Michigan dollars going to other states, more injuries, fewer skilled workers and zero cost savings.

No matter how you slice it, that's simply a bad bargain for Michigan taxpayers.

(Frank Manzo IV is the policy director for the Midwest Economic Policy Institute)