A prevailing wage is the average wage paid to laborers in a designated region and requires contractors to provide union wages and benefits on government-funded construction projects, such as when schools or roads are built. Once passed, the prevailing wage becomes the mandated wage floor for all government-contracted workers, and any contractor paying less faces fines or loss of the contract.
In 2018, Ohio lawmakers are expected to consider a constitutional amendment that will repeal the state’s prevailing wage requirement, a mandate forcing taxpayers to pay artificially inflated wages not based on market forces. Currently, 32 states have prevailing wage laws, which affect state taxpayer-funded projects above a certain budget floor. According to a 2008 study by the Beacon Hill Institute, federal prevailing wage laws force taxpayers to spend $8.6 billion more than they otherwise would to cover public construction projects.
Eighteen states do not have prevailing wage laws, and 10 of those repealed their laws by legislative action or because of a court decision. When the state mandates higher wages for individuals, contractors have less money available to pay for additional workers. Prevailing wages only guarantee higher labor costs, and the burden of these costs is transferred to others in the form of higher prices for contracted goods and services.
Ohio has in recent years seen a measure of success in bringing down its construction costs. In 1998, the Ohio General Assembly exempted construction undertaken by school districts from the state’s prevailing wage law. In 2002, the Ohio Legislative Service Commission examined the effects of this change and found exempting Ohio schools from the prevailing wage law saved the government $487.9 million on construction costs over a four year period, from 1998 to 2002.
Opponents argue prevailing-wage laws are a form of centralized planning and wage control that increases the costs of construction projects, reduces competition, and politicizes public projects. In a 2013 study, the Anderson Economic Group estimated the impact of Michigan’s prevailing-wage law on the average annual expenditures for construction of K–12 and higher-education facilities in Michigan over a 10-year period. The study found prevailing wage cost Michigan taxpayers $2.24 billion in increased costs, an average of $224 million annually. In Nevada, a 2011 study from the Nevada Policy Research Institute estimated the state’s prevailing wagelaw increased the cost of public works projects by $625M in 2009 and $346M in 2010.
Government projects are often criticized for exceeding their alotted budget, and prevailing wage laws are an important contributing factor. They force contractors to establish labor costs without any consideration for the type of work or the skill of their employees. Prevailing wage laws increase the cost of construction projects, reduce competition, and encourage waste and cronyism.
The following articles explain the origins and effects of prevailing wage laws.
Repairing Ohio’s Prevailing Wage Law
https://www.buckeyeinstitute.org/library/doclib/Repairing-Ohio-s-Prevailing-Wage-Law.pdf
Tom Lampman of the Buckeye Institute for Public Policy Solutions examines Ohio’s prevailing wage laws and argues they artificially inflate labor costs on public works construction projects. Lampman also says they are a costly obstacle to economic growth and effective governance.
The Effects of the Exemption of School Construction Projects from Ohio’s Prevailing Wage Law
https://heartland.org/publications-resources/publications/the-effects-of-the-exemption-of-school-construction-projects-from-ohios-prevailing-wage-law
This report from the Ohio Legislative Service Commission (OLSC) examines the effects of exempting school construction from the state’s prevailing wage laws. OLSC found exempting Ohio schools from the prevailing wage law saved the government $487.9 million on construction costs over a four-year period, from 1998 to 2002.
The Federal Davis-Bacon Act: The Prevailing Mismeasure of Wages
http://www.beaconhill.org/BHIStudies/PrevWage08/DavisBaconPrevWage080207Final.pdf Four researchers for the Beacon Hill Institute conclude in this study the U.S. Department of Labor inflated the prevailing wage on average by about 22 percent, causing an increase in construction costs of about 10 percent. States without prevailing wage laws almost always have lower construction costs than those with prevailing wage laws.
The Impact of Michigan’s Prevailing Wage Law on Education Construction Expenditures
https://heartland.org/publications-resources/publications/the-impact-of-michigans-prevailing-wage-law-on-education-construction-expenditures?source=policybot
The Anderson Economic Group estimates the impact of Michigan’s prevailing wage law on the average annual expenditures for construction of K–12 and higher-education facilities in Michigan over a 10-year period.
Prevailing Wage Reform in Pennsylvania
https://www.commonwealthfoundation.org/issues/detail/prevailing-wage-reform-in-pennsylvania
This Policy Points article from the Commonwealth Foundation argues prevailing wage laws are an unnecessary mandate that limits the number of construction jobs while inflating costs for state government, local governments, and school districts.
The Effects of Michigan’s Prevailing Wage Law
https://heartland.org/publications-resources/publications/the-effects-of-michigans-prevailing-wage-law
Paul Kersey of the Mackinac Center examines Michigan’s prevailing wage law and argues for repeal, claiming the law adds unnecessary costs to construction projects at taxpayers’ expense.
Prevailing Wage Repeal is Sound Policy
https://www.mackinac.org/21311
Michael D. LaFaive of the Mackinac Center discusses the effort to repeal Michigan’s prevailing wage and argues it is likely to eventually free up money for more road, school or other government construction projects.
Prevailing Wage Laws: Public Interest or Special Interest Legislation?
https://heartland.org/publications-resources/publications/prevailing-wage-laws-public-interest-or-special-interest-legislation?source=policybot
George Leef of the Cato Institute investigates whether prevailing wage laws are truly in the public interest or are merely an instance of rent-seeking by a politically potent interest group using its influence to create a government-enforced price-fixing scheme. Leef concludes prevailing wage laws favor special interests by concentrating benefits and dispersing costs. He argues they should be repealed.
Who Really Prevails Under Prevailing Wage?
http://www.npri.org/publications/who-really-prevails-under-prevailing-wage
Geoffrey Lawrence of the Nevada Policy Research Institute argues Nevada’s prevailing wage law adds substantially to the cost of the state’s public infrastructure: “As a result, fewer public funds are available to construct additional projects or to help alleviate fiscal stress within state and local governments. Instead, lawmakers channel hundreds of millions in tax dollars each year to benefit unionized construction labor—with some of that money, of course, subsequently flowing back into the same politicians’ campaign coffers.”
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
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Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
