A new report from the Illinois Economic Policy Institute (ILEPI) finds no evidence for the assertion that prevailing wage “inflates” construction worker wages in Illinois. In fact, after analyzing counties along Illinois’ border, the report finds that a higher prevailing wage for operating engineers has no statistical impact on employment or turnover for men working in road construction. Instead, local market conditions are by far the primary drivers of public construction outcomes. 

REPORT [PDF]: The Prevailing Wage is the Local Market Rate: Employment and Job Turnover Evidence from the Border of Illinois

A prevailing wage law supports blue-collar workers employed in public construction. By preventing government from using its massive purchasing power to undercut local standards, prevailing wage laws ensure that workers employed on taxpayer-funded projects are paid a competitive rate determined by private actors.

However, concerted efforts have been made in Illinois and at other states to weaken or repeal prevailing wage standards. These efforts are typically based on the premise that prevailing wage laws “inflate” construction worker wages above their market rate, which is a testable claim.

There is no evidence for this claim. In fact, based on recent data for 32 counties along the state line of Illinois and 33 border counties, the evidence clearly reveals that prevailing wage is the local market rate in Illinois. Using advanced economic modeling, a higher prevailing wage is found to have no effect on the employment of men working in road construction after adjusting for seasonality. A higher prevailing wage also has no discernible impact on job turnover, new hires, or layoffs and quits for men in the road construction industry in Illinois.

Local market conditions are far more important to labor market outcomes than prevailing wage:

• A 10% increase in the number of men employed in a county is associated with a 7.5-9.3% increase in male employment in the road construction sector of that county.
• Up to 75.3% of the job turnover rate for men working in road construction is directly attributed to local trends for male workers.
• Up to 74.1% of the average monthly income of men working in road construction is directly attributed to local trends for male workers.

The hypothesis that prevailing wage “inflates” construction worker wages in Illinois can be rejected for lack of supporting economic evidence.

The takeaway is that Illinois’ prevailing wage law has been effective at determining the local market rate. As prevailing wage per hour rises, there is no corresponding change in construction costs, monthly earnings, or employment.

If prevailing wage was repealed in Illinois, governmental bodies could interfere in the construction market and undercut local standards, resulting in wages that are below levels in the private market. Below-market compensation would put local contractors at a competitive disadvantage and encourage out-of-state contractors to enter Illinois’ public construction industry. Without Illinois’ prevailing wage law, private apprenticeship investment would also dramatically decrease. Repealing the state’s prevailing wage law would thus undermine the free market.

Prevailing wages are based on privately-established rates negotiated in local labor markets in Illinois. The state’s prevailing wage law prevents government from undercutting local standards, supports in-state contractors, provides a competitive level of compensation to workers, and promotes apprenticeship training. Illinois should continue this high-road public policy.

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Cover Photo: U.S. Army Corps of Engineers on Flickr