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By Stephen Herzenberg, Third and State
I've got an idea: let's employ low-wage, low-skill, and sometime out-of-state workers on small and medium-sized state-funded construction projects, with no benefit to taxpayers and negative impacts on local economies.
Sound like a stupid idea? That's because it is.
Here's the backdrop: Pennsylvania's prevailing wage law requires that workers on state-funded construction projects be paid a wage in line with what most other workers in their trade are paid within a certain geographical area.
Research in peer-refereed academic publications shows that the law could be called the quality construction law because it helps ensure the use of skilled workers on state projects. Where prevailing wage laws exist, training investment, worker experience, wages, benefits, and safety levels are all higher than where these laws do not exist.
Overall construction costs are the same with or without prevailing wage laws. The prevailing wage law, however, makes it impossible for contractors that employ low-wage, out-of-state workers to win bids on state projects: it ensures that jobs go to local workers, who spend their money at local businesses.
More middle-class jobs, stronger local economies, higher quality construction, no cost to taxpayers: what's not to like?
Unfortunately, some members of the Pennsylvania Legislature seem unwilling to leave well enough alone. Through House Bill 1329, these lawmakers want to make the prevailing wage law to apply to less state-funded construction work. How so? By exempting projects of less than $185,000 from prevailing wage standards. Currently, the law applies to all state-funded projects of $25,000 or higher.
In the first two posts of this series, I explained why the numbers being tossed around by advocates of repealing prevailing wage don’t add up. I explained that the claims of cost-savings are not based on any actual experience and that they represent the result of laughable hypothetical, or “what if,” calculations.
This leads to the most important point that the Pennsylvania School Boards Association, the Pennsylvania State Association of Boroughs, the Harrisburg Patriot-News Editorial Board and others keep missing: we can do much better than a hypothetical when assessing the impact of prevailing wage laws.
There is a body of research that examines construction costs (and other construction outcomes, like safety, training investment, wages, benefits, etc.) in states with and without prevailing wage laws as well as in states that eliminated prevailing wage laws. We don’t have to conjecture what “might” happen: we can look at what did happen. The preponderance of the evidence shows that prevailing wage laws do not raise construction costs.
Back in the late 1990s, Pennsylvania actually ran this real-world experiment itself — we lowered our prevailing wage levels, particularly in rural areas. That means we can look at what happened to construction costs. What happened is the same thing that has happened in other places — lower prevailing wages did not translate into lower construction costs.
The overwhelming weight of evidence based on the actual cost of public construction projects shows that prevailing wage laws do not raise costs. Therefore, advocates of repealing the law in Pennsylvania ignore this evidence. Instead of “evidence-based policy,” we have “lack-of-evidence-based policy.” Go figure.
Repeal advocates use a hypothetical calculation that makes assumptions about cost, rather than empirically examining the relationship between higher wages and total construction costs. (As discussed here, even these hypothetical cost estimates don’t make sense once you apply real world data to how much labor costs represent of total construction cost.)
Another key ingredient in the hypothetical calculations used by proponents of repeal is the claim made most recently by the Pennsylvania State Association of Boroughs (PSAB) that “the prevailing wage is 30 percent to 60 percent higher than the average wage for the same occupation.”
Part One of a Three-part Series on Prevailing Wage by Mark Price and originally published at Third and State.
Prevailing wage laws have long operated nationally and in states as a check against the tendency of the construction industry to degenerate into destructive wage and price competition. Such competition can drive skilled and experienced workers from the industry, reduce productivity and quality, and lead to poverty-level jobs, all without saving construction customers any money.
In an exhaustive review of the research on the impact of prevailing wages on contracting costs, Nooshin Mahalia concluded:
At this point in the evolution of the literature on the effect of prevailing wage regulations on government contract costs, the weight of the evidence is strongly on the side that there is no adverse impact. Almost all of the studies that have found otherwise use hypothetical models that fail to empirically address the question at hand. Moreover, the studies that have incorporated the full benefits of higher wages in public construction suggest that there are, in fact, substantial, calculable, positive benefits of prevailing wage laws.
Although the weight of evidence suggests prevailing wage laws do not raise costs, advocates for repealing the law in Pennsylvania continue to repeat some version of the following:
Bruce Bartlett, former advisor to Ronald Reagan and George H.W. Bush, has a column in the Economix blog at The New York Times this morning with compelling fresh evidence (from the Bureau of Labor Statistics) that job creation is not hampered by regulation but, you guessed it, a lack of demand.
Also this morning, as if on cue, news stories appeared about the movement Monday of bills to weaken Pennsylvania's prevailing wage statute. The Pennsylvania House majority leader called the current prevailing wage statute a "job-crushing" law — without actually providing any evidence, naturally.