STUDY: Prevailing Wages on Service Contracts Boost Incomes, Health Insurance Coverage, and Job Stability for Custodians

Laws establishing market-rate wage floor delivering best outcomes for People of Color

La Grange, IL: In the first ever national study on the application of prevailing wage laws outside the construction industry, researchers from the Illinois Economic Policy Institute (ILEPI) and the University of Illinois at Urbana-Champaign’s Project for Middle Class Renewal (PMCR) have found the laws boost incomes for custodians by 6 to 10 percent, with even stronger gains for People of Color employed in similar service occupations. The study comes amidst growing concerns about possible labor shortages for many frontline service, custodial, and food service occupations—particularly in the public sector.

Read the report, “The Impact of Service Contract Prevailing Wage Laws in the United States and Illinois: Effects on the Labor Market Outcomes of Custodial Workers.”

Federally funded construction and non-construction service jobs are already subject to prevailing wage requirements (via the Davis-Bacon Act and McNamara-O’Hara Service Contract Act), which ensure that public expenditures reflect local market standards for wages, benefits, and workmanship in the communities where work is being performed. While 27 states also have enacted prevailing wage laws for state-funded construction projects, just eight (New York, California, Illinois, New Jersey, Montana, Massachusetts, Connecticut, and Washington) currently have prevailing wage laws covering state or utility contracts for food, custodial, security, and other services. 

“In the low-bid public contract model, prevailing wage laws not only play an important role in protecting local market standards, but protecting workers most vulnerable to exploitation,” said study co-author and ILEPI Executive Director Frank Manzo IV. “Additionally, by turning more low-wage jobs into living-wage jobs, research shows that prevailing wages often have the added benefit of offsetting higher worker earnings with reductions in employee turnover costs borne by businesses and government assistance costs borne by taxpayers.”

For their study, the ILEPI and PMCR researchers examined 2017-2019 data from the U.S. Census Bureau’s annual American Community Survey to compare economic outcomes for custodians employed in states with service contract prevailing wage laws to those employed in states without.  They also analyzed metrics in Illinois, one of eight states with a service contract prevailing wage law. Researchers then applied industry-standard statistical analysis techniques called regressions in order to control for observable factors such as educational attainment, gender, race, geography, and marital, veteran or immigration status.

Overall, researchers were linked service contract prevailing wage laws with a 6 to 10 percent increase in the average custodian’s income, and a 1 to 2 percent increase in rates of health insurance coverage. They saw a 3 to 5 percent increase in the share of custodians employed full-time, correlating the policy with a 6 percent increase in weekly working hours and improved job stability overall. Data also suggested that fewer custodians live below the poverty line in states with service contract prevailing wage laws.

“Even when compared to other policy interventions such as raising the minimum wage, service contract prevailing wage laws mean higher incomes, more access to health coverage, and better job stability,” added study co-author, University of Illinois at Urbana-Champaign Professor, and PMCR Director Dr. Robert Bruno. “And with the data showing that non-white workers are 34 percent more likely to be employed in custodial occupations, it is clear that the biggest economic gains from these laws are being realized by People of Color.”

In general, Manzo and Bruno found that the impacts of Illinois’ service contract prevailing wage law generally aligned with the national trendlines of higher wages, improved rates of health coverage, and lower rates of poverty—with the biggest gains for African American and Latinx workers.

“Overall, the data indicates that service sector prevailing wage laws deliver outcomes that are analogous to construction industry prevailing wage laws,” Manzo concluded.   “Both are effective tools for improving employment conditions and living standards for blue-collar workers in the American economy.”

The Illinois Economic Policy Institute (ILEPI) is a nonpartisan nonprofit organization which uses advanced statistics and the latest forecasting models to promote thoughtful economic growth for businesses and working families in Illinois and across the Midwest.

The Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign investigates the working conditions of workers in today’s economy to elevate public discourse aimed at reducing poverty, create more stable forms of employment, and promote middle-class jobs.