“Today, after four years of economic growth… average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by – let alone get ahead.” –President Obama in the State of the Union Address, 2014.
Across the country, states and localities can respond to the President’s call to action and grow wages, create jobs, and reduce income inequality in at least one sector: the construction industry. Today, the Illinois Economic Policy Institute (ILEPI) is pleased to release a new study co-authored with Professor Robert Bruno, a labor expert at the University of Illinois at Urbana-Champaign, on labor market institutions in the construction industry.
The study, Which Labor Market Institutions Reduce Income Inequality? Labor Unions, Prevailing Wage Laws, and Right-to-Work Laws in the Construction Industry [PDF], finds that prevailing wage laws did a good job matching common construction rates with the actual market price of labor, increasing worker incomes by just 1.2 percent. On the other hand, they have no negative effect on the total incomes of contractor CEOs. Prevailing wage laws, the data show, reduce income inequality between the highest earners and the lowest earners of the construction industry by 45.1 percent.
These conclusions support and build upon prior research by ILEPI and the University of Illinois [PDF], which found that repealing Illinois’ prevailing wage law would cost the state a 3,300 net loss of jobs, a $365 million decline in construction worker earnings, an annual contraction of more than $1 billion in the state’s gross domestic product, and a combined $160 million lost in state, local, and federal tax revenues. The study also found that prevailing wage laws support construction apprenticeship programs, with participation rates that are 1.7 to 1.9 times those of states without prevailing wage laws.
Co-author Bruno noted in a recent news article that “a policy like the prevailing wage law is one of those safeguards that protects Illinois’ economy and workplace. Any efforts to change, alter, or weaken it would put one of the most important pillars of a middle-class economy in the state at risk.”
Conversely, right-to-work laws reduce the incomes of both construction workers and contractor CEOs. Right-to-work reduces construction occupation worker incomes by 13.5 percent. Because it lowers wages in the state economy and reduces consumer demand, CEOs of construction firms also see income reductions due to the policy. Overall, in addition to drops in total incomes, right-to-work increases inequality by between 2.5 and 8.2 percent in construction.
Finally, labor unions raise construction occupation workers’ incomes by 21.7 percent on average and are the most effective institution at reducing income inequality: a construction industry union membership rate that is 10 percentage-points higher in a state would reduce income inequality by between 4.7 and 14.5 percent in the industry.
Accordingly, construction workers in collective bargaining states and prevailing wage law states earn higher, more equitable total incomes than their counterparts in right-to-work states and states without prevailing wage laws.
- The median construction worker in a collective bargaining state earned 26.7 percent more than the median construction worker in a right-to-work state.
- The median construction worker in a prevailing wage law state made 16.7 percent more than the median worker in states without the law.
If income inequality is to be addressed, America should start with an industry that has proven institutions which support a good wage and generate positive economic development impacts for local businesses. Ultimately, Professor Bruno and I convincingly find that pro-worker policies are the best strategy for raising worker incomes, increasing consumer demand, and reducing inequality in the construction industry.