Fact Check: Which Policy Wonks Should You Trust on Prevailing Wage?

It is time to assess studies forecasting what would happen if Indiana repealed its prevailing wage law. A Ph.D. economist who has studied prevailing wage for 24 years was 100% accurate. A partisan ideologue was only 14% correct. Trust the expert, not the rhetoric.

In July 2015, Indiana repealed its prevailing wage law– called Common Construction Wage. Enacted in the 1930s, the policy was a minimum wage that supported blue-collar construction workers employed on public projects.

In the year prior to repeal, economic studies were published on the pros and cons of the Common Construction Wage, providing general forecasts on the impact that repealing the policy would have on Indiana’s construction market. The authors of each study appeared before the Tax and Fiscal Policy Committee in the Indiana Senate to testify on their findings:

  • One study was published in January 2015 by economics professor Peter Philips, Ph.D., who has been at the University of Utah since 1978. The report, Indiana’s Common Construction Wage Law: An Economic Impact Analysis, found that the policy was good for the construction industry, construction workers, and Indiana taxpayers. He said that repeal would lead to the loss of middle-class construction careers, the rise of less-skilled workers entering construction, and lower levels of productivity.
  • An opposing article was delivered in March 2015 by James Sherk, then a Research Fellow at The Heritage Foundation. In the article, How the Common Construction Wage Affects the Cost and Quality of Construction Projects, Sherk argued that Common Construction Wage only benefited unions. He claimed that the law “inflated” the cost of construction labor, limited competition on public projects, and that the higher productivity of union workers did not offset their higher labor costs. Sherk concluded that repeal– by cutting worker wages– would result in lower costs on public construction projects.

Data have now become available to assess the effects of repeal of Common Construction Wage in Indiana. In a new report that I co-authored with economics professor Kevin Duncan, Ph.D., The Effects of Repealing Common Construction Wage in Indiana: Impacts on Ten Construction Market Outcomes, we essentially “test” the claims made by policy researchers in the months leading up to repeal. Looking at real-life data, how has Indiana done since repeal? What actually has happened to wages, skill levels, productivity, turnover, market competition, and school construction costs?

Who was right?

The evidence indicates that Philips was accurate in his forecasts while Sherk’s testimony was largely incorrect. Here is a table of what each researcher said and what Professor Duncan and I found.

Indiana CCW Who Was Correct

  • Professor Philips made 8 claims that could be tested following repeal of Common Construction Wage. The data indicates that he was correct on all 8 of his forecasts (100%). As one of the nation’s foremost construction labor economists, Philips has repeatedly cautioned that repeal of prevailing wage laws ultimately leads to a less-skilled construction workforce with low levels of productivity– negating lower labor costs associated with repeal. There is convincing evidence that this phenomenon is playing out in Indiana.
  • James Sherk made 7 claims that could be tested following repeal. The data indicates that Sherk was correct on just 1 of his forecasts (14%). Sherk’s testimony rested on the premise that Common Construction Wage only benefited labor unions and that repeal would increase competitive bidding. However, data from northern Indiana suggests that Sherk’s forecasts were wrong. The number of bidders on public projects did not increase, union contractors captured a greater– not smaller– share of the market, and public school construction costs did not change.

And why wouldn’t Professor Philips have been more accurate? He is one of the nation’s foremost construction labor economists and he has studied prevailing wage laws for 24 years. He studied what happened after repeal of prevailing wage laws in the 1970s and 1980s in Alabama, Arizona, Colorado, Florida, Idaho, Kansas, Louisiana, New Hampshire, and Utah. Meanwhile, Sherk is a partisan researcher who now serves as an adviser to President Trump on the White House Domestic Policy Council. Sherk’s failing grade was due to an incomplete understanding of the construction industry grounded in assumptions that are at odds with peer-reviewed economic research.

 

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The Indiana experiment should be a lesson in trusting the experts, not the partisan rhetoric. Blue-collar construction worker wages have been cut and lesser-educated individuals have replaced high-skilled workers, while contractor competition has not increased and public school construction costs have not decreased.

In all likelihood, Representative Ed Soliday, a Republican who serves as Assistant Majority Floor Leader in the Indiana House of Representatives, probably wishes that his colleagues would have listened to the experts instead of the ideologues when he attested last year that: “We got rid of prevailing wage and so far it hasn’t saved us a penny. … There’s not 22% savings out there when the total cost of labor is 22%. It’s rhetoric. So far, I haven’t seen a dime of savings out of it.”

To read The Effects of Repealing Common Construction Wage in Indiana: Impacts on Ten Construction Market Outcomes, click here.

To read an Executive Summary of the report, click here.

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