Lowering Worker Wages is NOT the Answer

Lowering the wages of construction workers is NOT the way to prosperity.

There has been a national push to repeal state prevailing wage laws. Today, 21 states do not have prevailing wage laws and a few states are considering repealing their laws, including Missouri and Wisconsin – which recently weakened prevailing wage. Many other states have considered weakening their laws over the past few years. In addition, the national prevailing wage law, called the Davis-Bacon Act, has recently come under attack.

A prevailing wage law supports blue-collar workers employed in public construction. Prevailing wage is essentially a minimum wage for construction workers on publicly-funded projects. The law guarantees that workers employed on infrastructure projects funded by taxpayer dollars are compensated according to local market rates. By ascertaining the local market rate, a prevailing wage law prevents units of government from undercutting wage standards in a community.

Repeal of state prevailing wage laws only hurts construction workers.

It is often argued by political officials that prevailing wage laws are bad for taxpayers because the law inflates the wages of construction workers. Opponents of prevailing wage claim that the policy makes it costlier to hire workers, increases the total costs of construction projects, and that less work can be completed because of higher wages.

Economic research, however, has found that prevailing wage laws do not inflate construction costs on public projects. Fully 75 percent of recent peer-reviewed studies indicate that construction costs are not affected by prevailing wages. The main reasons why prevailing wage does not affect project costs is that wages and benefits only account for 20 to 25 percent of the total construction costs. As wages rise in construction, contractors hire better-skilled labor, invest in workers, and use more advanced equipment and machinery – offsetting the impact of higher labor costs.

Prevailing wage laws thus improve worker productivity. Prevailing wage upholds local training standards by supporting apprenticeship training and human capital skills upgrading. In 2012, states with prevailing wage had 65 percent more enrolled apprentices and 60 percent more graduating apprentices per hour of construction work than states without prevailing wage. Similarly, repeal has led to declining training and productivity. After nine states repealed their prevailing wage laws in the 1980s, apprenticeship training fell by 40 percent, resulting in an increase in cost overruns and an increase in injury rates.

Furthermore, repealing or weakening state prevailing wage laws hurt local contractors. States with prevailing wage laws have more construction projects completed by in-state contractors than states without the laws. Take what has happened in Indiana as an example. The case study of Indiana reveals that Kentucky contractors benefited most from the weakening of Indiana’s prevailing wage law. The higher paid construction workers in Indiana’s 13 southern counties were replaced by lower-paid Kentucky workers. Out-of-state Kentucky contractors and construction workers won the bids in Indiana counties, making the Indiana contractors lose out on work. This redistribution of jobs and earnings to Kentucky construction workers negatively impacted Indiana’s income tax revenues and sales tax revenues since Kentuckians who worked on the projects spent their income back in the Kentucky economy.

When well-trained, skilled local workers are replaced by less-skilled workers from out-of-town or other countries, research shows that any savings on wages are more than consumed by lower labor productivity and increased spending on materials and fuels by contractors. Once again, since labor costs are a small share of total construction costs, only minor adjustments are needed to maintain stable costs when wage rates increase.

Not only does eliminating prevailing wage negatively impact the incomes of construction workers, it also negatively impacts state economies. When workers earn lower wages, they spend less money back into the economy – resulting in job losses in sectors such as retail, restaurants and bars, transportation, health services, and financial services. When workers earn lower wages, they are also more likely to rely on government assistance and pay less in in income taxes, costing taxpayers millions of dollars. Lowering worker wages is not the answer to improving a state’s economic or financial position.

Most elected officials run on the promise of lifting wages, helping the middle class, and creating jobs. Repealing or weakening prevailing wage laws accomplishes none of these. If politicians campaign to repeal prevailing wage, they are doing so for ideological reasons only. Prevailing wage protects local market rate wages and supports middle-class incomes. On the other hand, repeal of prevailing wage hurts workers, contractors, and taxpayers.

Lowering worker wages is NOT the answer.

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