The Building Tradesman Newspaper

Friday, July 10, 2015

Piling on: Yet another study questions 'benefits' of prevailing wage repeal

By Marty Mulcahy, Editor

A petition is currently being circulated statewide seeking to repeal Michigan's Prevailing Wage Act, and if it's successful, would eliminate more than 11,000 jobs, reduce economic output in the state by $1.7 billion, carve out $28 million from local and state tax revenue, and export nearly $700 million in construction investments out of state every year.

That news comes from a study released June 29 by the Midwest Economic Policy Institute, Colorado State University Economist Kevin Duncan and Smart Cities Prevail, a construction industry research organization. The report is called "The Cost of Repealing Michigan's Prevailing Wage Policy: Impacts on Total Construction Costs and Economic Activity."

"Comparing data from prevailing wage and non-prevailing wage states shows repeal of the standard in Michigan will be a bad bargain for taxpayers," said study co-author Frank Manzo of the Midwest Economic Policy Institute. "There are no savings because reductions in construction wages are offset by decreases in workforce productivity, less worksite efficiency, and increased spending on energy and materials."

The study also demonstrates a significant economic ripple effect that would result from repeal. Not just from lower wages and less spending by Michigan's construction workers, but also because striking prevailing wage would open the door to Michigan utilizing more out-of-state contractors.

"Every sector of the economy would feel the impact of prevailing wage repeal," said study co-author and Colorado State University Economist Kevin Duncan. "This would be a self-inflicted wound that suppresses economic activity, exports hundreds of millions of construction dollars out of state, and puts thousands of people out of work."

Duncan noted that these impacts would ultimately create additional burdens for state and local government, and by extension, Michigan's taxpayers. "Less economic activity and fewer people working for lower wages translates to more reliance on public assistance programs and lower tax revenues," he added. "There are only two ways to close that gap: raising taxes or making even deeper cuts to vital public services."

Prevailing wage repeal proponents - including the Associated Builders and Contractors, the state Chamber of Commerce and a wide swath of Republican lawmakers in Lansing - usually only cite two major reasons for repeal, including getting government out of our lives and saving taxpayer dollars.

Norm Brady, president and CEO of the West Michigan chapter of the anti-union ABC, told that repeal of prevailing wage would be a positive for the industry and the state in general.

“There’s nothing prevailing about Michigan’s prevailing wage rates,” Brady said. “To have (wages) artificially inflated on certain projects isn’t good for the industry.”

A study by the Anderson Economic Group, frequently cited by the ABC and their ultra-conservative cohorts in Lansing, found that the state would save $224 million per year in state school construction costs if repeal took place. But those alleged savings have been debunked by Utah economics Professor Peter Phillips as "magical thinking."

The study released June 29 is the third prevailing wage economic impact study in as many months that Duncan has co-authored, along with Smart Cities Prevail Researcher Alex Lantsberg.

"There is a reason why prevailing wage policies have stood the test of time and have long been embraced by leaders in both political parties-including Michigan's Republican Governor Rick Snyder," added Lantsberg. "Our goal is to ensure that voters and policy makers have the facts they need to make informed decisions that reflect the best interests of taxpayers and the economy as a whole-and our research shows that repeal of prevailing wage falls far short of that standard."

In addition, this research builds upon similar prevailing wage repeal studies performed in the past by the aforementioned Dr. Phillips at the University of Utah, Dr. Dale Belman at Michigan State University, and the Department of Economics at the University of Missouri.

"Our update of 2011 has shown that Missouri’s prevailing wage laws do not raise the cost of construction," says the Missouri study. Utah's Phillips found "no statistically significant difference" existed in costs on public school construction jobs with or without prevailing wage laws in effect. MSU's Belman has done his own research which came to a similar conclusion doubting taxpayer savings with prevailing wage repeal. Plus he cited research by the Legislative Fiscal Bureau of Wisconsin (2015) and the Minnesota Office of the Legislative Auditor (2007) which found the same thing. Belman called the prevailing wage repeal effort "devoid of thoughtful consideration of the strengths and weaknesses of these laws."

This study illustrates, as do the others, that prevailing wage repeal doesn't exist in vacuum - cutting wages will have real affects on the industry and the rest of the economy.

"Ultimately," it concluded, "the prevailing wage for publicly-financed construction projects is a positive economic development tool providing substantial benefits to workers, contractors, families, and the overall economy. Weakening or repealing Michigan’s prevailing wage law will not reduce the cost of public construction and is not in the best interest of taxpayers. Instead, repeal would result in job losses and would reduce tax revenues in Michigan. Prevailing wage supports a dynamic, “high road” economy that promotes worker productivity and boosts economic activity."