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Prevailing-Wage Laws Cause Permanent Harm

October 11, 2017

Far more harm than benefits to workers and taxpayers.

Local and county lawmakers are often hard-pressed to do more for taxpayers at maximum efficiency. Taxpayers want top-rate government buildings, schools, and parks for their communities, but they also don’t want to pay unnecessarily high taxes.

What if I told you there was a way to have better government facilities built without having to raise taxes through the roof? No, it’s not an empty political promise; it can be accomplished by repealing prevailing-wage laws.

Shortly after the Civil War, Kansas became the first state to require contractors working on government projects to pay the area’s average, or “prevailing,” wage rate for the type of work performed, instead of allowing competitive bidding. Other states — such as Idaho, New York, and Oklahoma — soon followed suit, along with the national government. More than a century later, 29 states still have these costly 19th-century laws on their books.

Thankfully, lawmakers and engaged citizens across the country are now considering rolling back these outdated, anti-competitive policies. For instance, in Michigan, everyday people are collecting signatures to place a referendum question on the November ballot to repeal the state’s prevailing-wage law. Repeal bills have been proposed by lawmakers in Nevada, Ohio, and Wisconsin, and a Missouri Senate interim committee is contemplating this summer how to proceed forward with prevailing-wage reform (after petty partisan politics killed the chamber’s consideration of a related bill during the regular session).

Lawmakers in these states and many others are increasingly realizing prevailing-wage laws force taxpayers to pay more for construction projects without receiving more in return.

Using data collected from private contracting firms, Kentucky Legislative Research Commission researcher Mike Clark compared prevailing-wage projects’ costs to private projects’ costs, searching for a link between paying more and getting more. Clark’s study, published in the peer-reviewed Journal of Labor Research, did not find that link, but he did find something more interesting.

Holding other factors, such as training and materials, equal — by virtue of studying the same individual workers and contracting firms — Clark found public-works projects subject to the prevailing-wage law cost taxpayers much more than the same kind of projects built by the same people cost private investors.

Prevailing-wage laws do not improve workers’ quality, but they do benefit the contracting firms receiving the sweetheart deals provided by this protectionist policy.

“If construction workers are paid more on prevailing wage projects than non-prevailing wage projects, the regulations likely increase the cost of public construction,” Clark wrote. “If workers are paid more on prevailing wage projects than they are on private projects, prevailing wage laws result in wage payments above what the private market pays for the same level of quality.”

Another study, conducted by researchers from the University of California-Berkeley, found prevailing-wage laws help fray the so-called “safety net” provided by lawmakers, by making taxpayer-subsidized housing more expensive and, therefore, scarcer.

Ceteris paribus, low-income housing projects were significantly more expensive if developers were required to pay prevailing wages,” the researchers wrote. “Increases in project cost due to prevailing wage regulation surely lead to reductions in the number of newly constructed low-income housing units produced through public subsidy.… And at a cost increase of 37.2 percent — our upper bound estimate — the imposition of prevailing wage legislation would have prevented 4,253 low-income housing units from being developed.”

Many other similar studies have been conducted over the years, all leading to the same conclusion: Prevailing-wage laws, like all other government attempts at “protecting” people from free-market competition, hurt more than they help.

Lawmakers in every state, as well as in Congress, should close the book on 19th-century protectionism and allow the power of free markets to do what it does best: give taxpayers the biggest bang for their bucks.

[Originally Published at American Spectator]

Article Tags
Taxes Economy
Author
Jesse Hathaway is the managing editor of Budget & Tax News, a publication of The Heartland Institute.
jhathaway@heartland.org @JesseinOH

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