The Building Tradesman Newspaper

Wednesday, February 04, 2015

Time to speak up, support prevailing wage, The law helps create 'a better construction industry'

By Marty Mulcahy, Editor

LANSING - So what happens if prevailing wage goes away in Michigan?

It's simple, says state Senate Majority Leader Arlan Meekhof (R-West Olive). He has cited an Anderson Economic Group study, which says that repeal of the Michigan Prevailing Wage Act of 1965 will save state taxpayers $224 million a year in school construction costs. Citing those numbers, state Republican lawmakers have targeted prevailing wage repeal as their top priority: the first six bills introduced in January in the Republican-led House and Senate would repeal the law either in whole or in part.

"It does not make sense that our taxpayers should have to pay more for improvements to our school and municipal buildings," said Meekhof.

But a bevy of other studies over the years have found no such thing - that prevailing wage repeal not only doesn't save taxpayers money, it causes a number of downstream consequences that lead to poorer, less insured construction workers, lower safety standards, skimpier training programs, and a society whose growth is stifled because there's less money circulating through it.

Michigan's prevailing wage law and other statewide laws are modeled after the federal Davis-Bacon Act of 1931, which assures that wages that "prevail" in a given area are what is paid on taxpayer funded projects. The law helps keep contractors from winning bids by hiring out-of-area workers and underpaying them.

Over the years, the Michigan Building and Construction Trades Council has sponsored all manner of educational meetings for politicians, industry leaders and the general public in an attempt to further public education about prevailing wage. Beyond that, ongoing academic and economic studies have continued to be consistent with studies from the 1980s and 1990s and 2000s that showed the lack of benefits of prevailing wage repeal.

Following is a sample of some of the more recent research, and what experts have said about prevailing wage repeal through the years.

*Construction workers earn an average income (from wages) of $29,984 per year in non-prevailing wage law states and $32,064 per year in states with prevailing wage. While construction workers earn 8.0 percent more in prevailing wage states than their counterparts in non-prevailing wage states, they also contribute 35.7 percent more in after-credit federal income taxes (Midwest Economic Policy Institute, 2014)

*Michigan’s prevailing wage law was invalidated by a federal judge in November 1994, but that ruling was effectively overturned two-and-a-half years later. University of Utah economist Professor Peter Phillips compared school construction costs in Michigan from 1992-1998, and found that costs actually increased by $5 per square foot during the suspension of the act. (The Building Tradesman, 1998)

*A 56-page study by University of Utah economist Peter Phillips looked at the repeal of Kansas’ prevailing wage law in 1987, and how it affected labor and construction costs. The paper compared Kansas’ construction costs to costs in 14 surrounding Great Plains states – five of which had prevailing wage laws, nine of which did not. He studied school construction costs from 1991 through 1997. “The results of the study are clear,” Phillips said. “Our comparison of new school construction in Great Plains states with and without prevailing wage laws found no statistically difference in costs. On average, Kansas does not build schools any cheaper than surrounding states that have wage laws regulating school construction.”

While for taxpayers in Kansas "there was no gain,” Phillips said. "There was pain.” Average construction wage rates in Kansas after repeal fell 11 percent. In surrounding states with prevailing wage, wages fell by only 2 percent. After repeal in Kansas, contributions by construction contractors to pensions and health insurance fell by 17 percent. And, apprenticeship training fell by 38 percent in Kansas. Serious injuries in that state rose by 21 percent after repeal. (The Building Tradesman, 1998)

*Prevailing wage "helps create a better construction industry" by fostering more qualified and trained workers, a greater tax base, and ultimately, better quality buildings. "Higher wages are very strongly related to higher productivity." But at the same time, "lower wage rates and the absence of benefits do not necessarily imply lower total costs" for contractors. "You can't assume worker productivity is the same at a lower wage. It's an erroneous assumption."
(Dr. Dale Belman, Michigan State University School of Industrial Relations. Source: The Building Tradesman, March 2014 Lansing Prevailing Wage Symposium)

*Michigan's prevailing wage law is based on the federal Davis Bacon Act. “The Davis-Bacon Act’s benefits include protecting both the living standards of construction workers and the competitiveness of local construction firms bidding against transient contractors who might win federal contracts on the basis of lower-than-prevailing local wages. Government contracts are especially vulnerable to such practices, because they must be awarded to the lowest qualified bidder. Further, by excluding bids from contractors who would use lower-wage, less-skilled workers, Davis-Bacon may aid federal agencies in choosing contractors who will do high quality work. Finally, by helping to stabilize wage rates in the inherently volatile construction labor market, Davis-Bacon may aid the industry in recruiting and training workers, thereby helping to maintain the long-term supply of skilled labor.”
(Alice Rivlin, director, the nonpartisan Congressional Budget Office, 1983)

*(Referencing Rivlin's above statement) "Careful academic research has shown again and again that the Davis-Bacon Act achieves these goals without significantly raising the federal government’s cost of construction. By protecting the wages of higher-skilled workers from low-wage, less-skilled competition, Davis-Bacon raises employee productivity and offsets the cost of paying higher hourly rates. Better-managed firms and more skilled employees also tend to work more safely, reducing the number of accidents, lowering workers compensation costs, and preventing damage to materials and equipment.
(Ross Eisenbrey, Economic Policy Institute, 2013, Testimony on the Davis-Bacon Act given before the U.S. House of Representatives Subcommittee on Workforce Protections)