Research & Commentary: Eliminating Prevailing Wage Lowers Cost of Public Projects for Missouri Taxpayers

Published April 5, 2017

The Missouri state legislature is considering eliminating the state’s prevailing-wage law. 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.

Missouri’s prevailing-wage rates vary by county. As an example, according to the Springfield News-Leader, the most recently issued hourly rate for a carpenter is $24.73 in Greene County. In St. Louis County, a carpenter earns $36.98. The rates also vary by profession. The Missourian notes according to the Missouri Department of Labor, “the lowest prevailing wage rate for projects in Franklin County is $26.42 per hour for a tile or marble finisher. The highest hourly rate is $46.04 per hour for an elevator constructor. Other skilled tradesmen in 34 other categories all have hourly wages averaging about $35 per hour on public jobs.”

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 have to do for public construction projects.

Recently, local and state governments have begun to repeal these burdensome laws. Eighteen states do not have prevailing-wage laws, and 10 of those repealed their laws by legislative action or because of a court decision.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.

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 CCW 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 CCW law increased the cost of public works projects by $625M in 2009 and $346M in 2010.

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.

Missouri should consider repealing prevailing-wage laws for the sake of taxpayers.

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

Beacon Hill Institute Study Finds Davis-Bacon Wages Grossly Inflated  
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
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
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
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
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.

Delaware’s Prevailing Wage: A Long History of Taxpayer Abuse
Describing the problems prevailing-wage laws have caused in Delaware, an analyst at the Caesar Rodney Institute 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).

The Effects of the Exemption of School Construction Projects from Ohio’s Prevailing Wage Law
The Ohio Legislative Services Agency reports repealing the state’s prevailing-wage law achieved $488M in savings during a five-year period, a 10 percent reduction in construction costs.

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?
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.”

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