The Building Tradesman Newspaper

Friday, June 15, 2018

Study can't find benefits after repeal of prevailing wage law in Indiana

By Marty Mulcahy, Editor

(Editor's note: this was published earlier this year in The Building Tradesman. Now that Michigan's Republican lawmakers have followed the lead of their cohorts in Indiana and repealed the state's Prevailing Wage Act, it bears repeating to illustrate what is likely next for our state).

On July 1, 2015, Indiana's state Legislature did what a lot of Republican lawmakers in Michigan have been wanting to do: repeal the state's prevailing wage law.

In the Hoosier state, the repeal of what they call the "Common Construction Wage," aka prevailing wage - was pushed as a way to save taxpayers dollars, and free up more money to spend on school, road and municipal construction.

Two and a half-years later, no one in Indiana is talking about taxpayer savings as a result of the law. In fact, yet another study has come out, claiming that repeal didn't save taxpayers a dime, but it also reduced worker wages and productivity, while increasing workforce turnover.

"Repeal has had negative consequences for Indiana," says a report released Feb. 1 by the independent Midwest Economic Policy Institute. "Blue-collar construction worker wages have been cut and lesser-educated individuals have replaced high-skilled workers, contributing to higher turnover rates and lower per-worker productivity levels. Contractor competition has not increased for bids on public construction projects and public school construction costs have not decreased. Ultimately, repeal of Common Construction Wage has not saved taxpayers any money and, in fact, has had negative effects on construction market outcomes in Indiana."

The institute's latest work is more evidence in a long line of studies and papers that calls into question the motives - and rationality - of prevailing wage repealers in Indiana, Michigan and elsewhere. These findings mirror those of researchers from Michigan State University, the University of Utah, the University of Illinois at Urbana-Champaign, the University of Missouri-Kansas City, - among others - that have uniformly found zero benefits to taxpayers when prevailing wage laws are repealed.

This latest report, The Effects of Repealing Common Construction Wage in Indiana, looked at actual economic data to evaluate the impact of repeal on ten construction market outcomes. The data show that:

*Prevailing wage repeal decreased the wages of blue-collar construction workers by 8.5 percent, on average.

*Repeal had no statistical impact on the average cost per public school project in northern Indiana.

*Repeal decreased the wages of the lowest-paid construction workers by 15.1 percent, contributing to greater wage inequality in construction.

*Repeal was statistically associated with a 4.5 percent increase in the share of workers in construction occupations without a high school diploma.

*Construction worker productivity growth was 5.3 percent slower in Indiana than in neighboring Midwest states following repeal.

*Relative worker turnover increased by 1.2 percent in Indiana’s heavy and highway construction sector following repeal.

*Employment growth in public works construction was 1.5 percent slower in Indiana than in neighboring Midwest states following repeal.

*Repeal didn't open the door to more contractors, and thus lower bids. The number of bidding contractors barely budged: the average number of bidders on public projects in northern Indiana was 3.0 before repeal and 2.9 after repeal.

*The Common Construction Wage did not favor union contractors, as the union share of northern Indiana’s public construction market stayed the same or even increased following repeal.

The Midwest Economic Policy Institute, whose research was performed by Frank Manzo IV of the policy institute, and Kevin Duncan, of Colorado State University-Pueblo, isn't the first to recognize the lack of benefits of prevailing wage repeal. In a widely disseminated quote, State Rep. Ed Soliday, assistant Republican Floor Leader in the Indiana House of Representatives, said in April 2017: "We got rid of prevailing wage and so far it hasn’t saved a penny." Soliday is one of the few Republican lawmakers in Indiana or Michigan who support a prevailing wage.

He said the rhetoric in public hearings promised a lot with prevailing wage repeal, but delivered nothing. "The exaggerations in those hearings that we were going save 22 percent," Soliday said. "Well, total labor costs right now in road construction is about 22 percent, and I haven’t noticed anyone who’s going to work for free. (They claim) there’s some magic state out there that’s going to send all these workers into work for $10 an hour and it’s just not going to happen. There are not 22 percent savings out there when the total cost of labor is 22 percent. It’s rhetoric. So far, I haven’t seen a dime of savings out of it."

These effects contrast starkly with the claims made by those who supported Indiana's Common Construction Wage, including former Indiana Gov. Mike Pence (now vice president), who signed the repeal legislation. "Wages on public projects should be set by the marketplace and not by government bureaucracy," Pence said at the time. "By repealing the common construction wage, our state is putting hardworking taxpayers first, lessening the burden on cash-strapped local governments and schools, and opening doors of opportunity for small businesses across our state."

That's wrong, wrong and wrong, according to the study. 

"The early data from Indiana is unambiguous, and confirms what most peer-reviewed economists have been saying for decades," researcher Duncan said. "Repeal of prevailing wage laws does not save taxpayer dollars, but it shrinks middle-class paychecks, hurts the economy, and causes problems ranging from lower productivity to higher turnover for the construction industry."