The Wisconsin Legislature is now considering legislation that would eliminate the prevailing wage requirement for state projects. Prevailing wage laws are one of the many factors causing the cost of government construction projects to increase at an unsustainable rate. Fortunately, unlike the cost of materials, there are measures a state can take to alleviate these costs, such as repealing prevailing wage laws.
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. 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 have to do for public construction projects.
Eighteen states do not have prevailing wage laws, and recently, many local and state governments have begun to repeal these burdensome requirements. 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. In 2015, Wisconsin began the process of rolling back its prevailing wage laws by eliminating prevailing wage for local construction projects.
The new proposal in Wisconsin would end the current requirement that laborers, workers, mechanics, and truck drivers employed on a state construction project be paid the prevailing wage set by government. The prevailing wage is determined by sending out surveys to contractors who worked in Wisconsin in a previous year.
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. A study by the Wisconsin Taxpayers Alliance estimates prevailing wage laws generated up to $300 million in additional costs to taxpayers in 2014 on vertical construction projects. (This estimate does not include non-vertical construction projects such as highway projects, which cost taxpayers billions.)
The Wisconsin-based MacIver Institute argues the price-setting process in Wisconsin is flawed because the return rate is low, often only reaching 10 percent of workers, and over 80 percent of the returns received are from union shops, despite the fact that unions only represent 25 percent of construction workers in the state. Of these reported wages, the prevailing wage is determined using an average of the top 51 percent of wages reported instead of an actual average.
Chris Rochester of the MacIver News Service argues the prevailing wage rates used in Wisconsin are higher than those used elsewhere. “The federal Bureau of Labor Statistics also gathers wage rate information by occupation using surveys; except their return rate is 74 percent and they use actual averages. It turns out that Wisconsin’s prevailing wage rates are much higher than BLS rates for the same occupations and areas. In 2014, a general laborer in Milwaukee earned $28.31 an hour under prevailing wage, which was 35 percent higher than what the BLS said the rate should be,” wrote Rochester.
Government projects are often criticized for consistently operating over budget, and prevailing wage laws are a central cause of that problem. 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. Wisconsin lawmakers should support repeal of their state’s common construction wage law.
The following articles explain the origins and effects of prevailing wage laws.
Prevailing Wage Opponents, Supporters Make Their Case in Senate Hearing
http://www.maciverinstitute.com/2017/04/prevailing-wage-opponents-supporters-make-their-case-in-senate-hearing/
Chris Rochester of the MacIver News Service examines the prevailing wage debate currently underway in Wisconsin.
Wisconsin’s Secret Cost-Driver: The Prevailing Wage Law
http://www.maciverinstitute.com/2015/03/wisconsins-secret-cost-driver-the-prevailing-wage-law/
The MacIver Institute examines Wisconsin’s prevailing wage law and the negative effects it has had on government projects across the state. “Prevailing wage is a backward policy designed to ensure government contract workers are paid wage rates and receive benefits that are “prevailing” in a given industry or region. As it turns out, prevailing wages can be up to 40 percent higher than competitive market wages, meaning taxpayers are hit with an extra cost burden on many government projects,” the authors wrote.
Beacon Hill Institute Study Finds Davis-Bacon Wages Grossly Inflated
http://heartland.org/policy-documents/federal-davis-bacon-act-prevailing-mismeasure-wages
Four researchers for the Beacon Hill Institute found the U.S. Department of Labor inflated the prevailing wage on average by about 22 percent, causing an almost 10 percent increase in construction costs. 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/policy-documents/impact-michigans-prevailing-wage-law-education-construction-expenditures
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/policy-documents/effects-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?
http://heartland.org/policy-documents/prevailing-wage-laws-public-interest-or-special-interest-legislation
This comprehensive study by George C. Leef of the Cato Institute, details the background and current data on the effects of prevailing wage laws in the United States. Leef’s research shows the laws “increase costs and reduce efficiency” as competition is squeezed out of the market.
Prevailing Wage Laws: Public Interest or Special Interest Legislation?
https://heartland.org/policy-documents/prevailing-wage-laws-public-interest-or-special-interest-legislation
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.
