Policy Documents

Research & Commentary: Prevailing Wage Laws

September 25, 2013

Thirty-two states have prevailing wage laws. In most of those states, the laws affect only projects above a certain budget floor, ranging from as low as $1,000 (California, Rhode Island) to as high as $500,000 (Maryland). Of the 18 states without prevailing wage laws, ten used to have the law but it was repealed by legislative action or court decision.

The prevailing wage is the average wage paid to a certain type of laborer in a specific geographic area. Since the introduction of federal regulations during the Great Depression, government contractors have been required by law to pay their employees at the region’s prevailing wage rate. When the federal government initiates a construction project, for example, the Department of Labor surveys the region and determines the prevailing wage, which is then instituted as a wage floor for contracted workers. Contractors paying less than the prevailing wage face harsh fines and possibly the loss of the contract.

State and federal prevailing wage laws have a significant effect on the $300 billion spent every year for government construction projects in the United States. Recently, local and state governments have begun to turn against the laws. Mayor Michael Bloomberg was successful in challenging New York City’s prevailing wage law in court. Michigan is considering repealing its prevailing wage laws, and some of the state’s counties already have done so.

Proponents of prevailing wage laws say they are necessary to provide fair wages to government contractors. Considering the size of government projects, advocates worry some contracts could be so large they will disrupt the labor market. Competition for government contracts could cause a “race to the bottom” as contractors cut costs by slashing salaries so they can submit the lowest bid to get the contract. Thus prevailing wage laws prevent wages from falling.

Opponents of prevailing wage laws characterize them as political payoffs. Government construction projects are infamous for being needlessly expensive and going over already-hefty budgets. Prevailing wage laws are a key component of these high costs. Instead of allowing market competition to determine efficient wage rates, these laws seek to lift wages artificially, often for political purposes, with the money coming straight out of the taxpayer’s pocket.

Prevailing wage laws are a form of central planning that establishes labor costs with no consideration for the exact type of work or the skill of the employees. They serve no productive function in government contracting, instead encouraging waste and cronyism. Lawmakers at the state and federal levels should consider repealing prevailing wage laws for the taxpayers’ sake.

The following articles explain the origins and effects of prevailing wage laws.

Beacon Hill Institute Study Finds Davis-Bacon Wages Grossly Inflated
http://heartland.org/policy-documents/federal-davis-bacon-act-prevailing-mismeasure-wages-0
Four researchers for the Beacon Hill Institute analyze the national effects of inaccurate prevailing wage measurements. They found the 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.

Prevailing Wage Laws: Public Interest or Special Interest Legislation?
http://heartland.org/policy-documents/prevailing-wage-laws-public-interest-or-special-interest-legislation-0
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.

House Bill 1025: Prevailing Wage Expansion Bad for State’s Economy
http://myfreedomfoundation.com/blog/liberty-live/detail/hb-1025-prevailing-wage-expansion-bad-for-states-economy
Trent England, executive vice president of the Freedom Foundation, reports on a recently proposed bill to expand the federal prevailing wage law. He argues the law was originally created as a means to exclude black laborers from the market, as white contracting firms would not have to cut their workers’ wages to compete with black firms. Today the laws are simply inefficient and drain state coffers, resulting in fewer construction projects at higher costs. Expanding the federal prevailing wage would bring more industries under the prevailing wage umbrella and exacerbate these problems. 

Unions Continue to Reshape Illinois Prevailing Wage Law
http://laborandemploymentlawupdate.com/2013/08/05/unions-continue-to-reshape-illinois-prevailing-wage-law-new-radical-changes-for-20132014/
Jeffrey Risch discusses Illinois labor unions’ attempts to expand the state’s prevailing wage law over the past decade. Because of constant lobbying and political pressure, Illinois’ law has been altered during nearly every legislative session for years. Many contractors and union leaders are not sure what the current bill says, Risch notes. 

Prevailing Wage Scam Steals from Tax Payer
http://calwatchdog.com/2013/01/11/prevailing-wage-scams-steal-from-taxpayers/
Katy Grimes of CalWatchdog.com relates a story of a California-based construction contractor who was forced by prevailing wage laws to pay some of his workers outrageous wages. Vague job categorization resulted in the contractor having to pay the janitors cleaning up a work site $45 per hour, even though the job would usually warrant $10–15 per hour.

Delaware’s Prevailing Wage: A Long History of Tax Payer Abuse
http://criblog.wordpress.com/2011/11/13/delaware%E2%80%99s-prevailing-wage-a-long-history-of-taxpayer-abuse/
An analyst at the Caesar Rodney Institute describes the failure of prevailing wage laws in Delaware. He notes the Delaware Department of Labor’s methodology for determining the minimum wage skews the prevailing wage toward higher, union wages and overestimates the prevailing wage by an average of 23 percent (and 40 percent for construction workers).

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 Heartlander’s Budget & Tax News Web site at http://news.heartland.org/fiscal, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org

If you have any questions about this issue or The Heartland Institute, contact Heartland Government Relations Intern Matt Faherty at 845-216-5627 or matt.heartland@gmail.com.