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The Effects of Prevailing Wage Laws: A Comparison of Individual Workers' Wages Earned On and Off Prevailing Wage Construction Projects

September 1, 2005
By Mike Clark

This study uses industry data from Kentucky contracting companies and U.S. Department of Labor Bureau of Labor Statistics wage data to examine the effects of prevailing wage laws on workers’ wages and project quality.

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This study, authored by Kentucky Legislative Research Commission researcher Mike Clark and published in Journal of Labor Research, uses industry data from Kentucky contracting companies and U.S. Department of Labor Bureau of Labor Statistics wage data to examine the effects of prevailing wage laws on workers’ wages and project quality.

The study uses data from Kentucky companies to directly compare the labor costs paid to workers for prevailing-wage projects to the cost of projects not covered by prevailing-wage laws, paid to the same workers, Clark writes.

“This study adds to the discussion of prevailing wage laws by using a new data set from Kentucky that shows the wages paid to workers on prevailing wage projects and the wages paid to the same workers during the same time period for work on projects not covered by prevailing wage regulations,” Clark wrote. “If construction workers are paid more on prevailing wage projects than non-prevailing wage projects, the regulations likely increase the cost of public construction. The advantage of these data is that, by holding constant both the workers and the time period, the possibility that other factors not related to the prevailing wage law may be explaining observed differences is reduced. Although the data do not allow for an evaluation of whether prevailing wage laws increase the quality of construction, they do provide an indication as to whether any marginal increase in quality is achieved efficiently. 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.”

There is no empirical link between project quality and prevailing-wage status, Clark writes.

“Even in areas where wages do reflect workers' marginal product, mandating that higher wages be paid does not ensure that workers with greater skills are hired,” Clark wrote. “Non-prevailing wages represent the wage level paid by the private market. In a competitive market, the non-prevailing wage should equal the value of the workers' marginal product. As the wage comparison above showed, 60 percent of the workers sampled were paid above the wage that they earn on non-prevailing wage projects. In the extreme case, one worker who normally earned $8 per hour on non-prevailing wage projects was paid $22.50 per hour on a prevailing wage project. This worker was being paid $14.50 more than the market valued his work. This occurs because prevailing wages laws set minimum wages, not minimum levels of quality.”