Once again, Missouri lawmakers are considering a bill to repeal the prevailing wage law. A prevailing wage is the average wage paid to laborers in a designated region and requires contractors to pay union wages and benefits on government-funded construction projects, such as schools or roads. The prevailing wage becomes the mandated minimum wage for all government-contracted workers, and any contractor paying less faces fines and/or loss of the contract.
Missouri’s prevailing wage rates vary widely by county. For example, the most recently issued hourly rate for a carpenter is $24.73 in Greene County according to the Springfield News-Leader. However, in St. Louis County, a carpenter earns $36.98. The rates also differ greatly by profession. The Missouri Department of Labor reports “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.”
Fortunately, more and more local and state governments are repealing these burdensome laws. To date, eighteen states do not have prevailing wage laws. Ten states have eliminated these onerous laws either by legislative action or court decision.
Every time governments mandate higher wages, contractors have less money available to pay 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. A 2008 study by the Beacon Hill Institute showed federal prevailing wage laws force taxpayers to spend $8.6 billion more for public construction projects.
The Missouri bill, already approved by the House, would repeal the Show Me State’s prevailing wage law. The current law requires a prevailing wage for the each government-funded construction project based upon the particular locality in which the project is located. On the other hand, the new bill requires contractors and subcontractors for such projects would pay employees state or federal minimum wage, whichever is higher.
The Missouri bill is similar to Ohio’s model, which implemented a series of prevailing wage reforms. Since Ohio instituted these reforms, construction costs for government-funded projects have plummeted. For example, in 1998 the Ohio General Assembly exempted school construction projects 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.
In 2013, 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 over a 10-year period. The results: prevailing wage laws cost Michigan taxpayers $2.24 billion in increased costs, an average of $224 million per year. In Nevada, a 2011 study estimated the state’s prevailing wage law increased the cost of public works projects by $625M in 2009 and $346M in 2010 according to the Nevada Policy Research Institute.
Government projects are often criticized because they far exceed initial budget projections, and prevailing wage laws contribute significantly to cost overruns. Misguided prevailing wage laws increase construction projects costs, reduce competition, encourage waste, and breed cronyism. Fortunately, more state and local governments are repealing these antiquated laws, thereby ensuring government-funded projects adhere to the same economic forces that make private sector construction projects more cost-effective and less exorbitant.
The following articles explain the origins and effects of prevailing wage laws.
The Federal Davis-Bacon Act: The Prevailing Mismeasure of Wages
http://www.beaconhill.org/BHIStudies/PrevWage08/DavisBaconPrevWage080207Final.pdf The Beacon Hill Institute concludes 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
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?
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.
Delaware’s Prevailing Wage: A Long History of Taxpayer Abuse
http://criblog.wordpress.com/2011/11/13/delaware%E2%80%99s-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
https://heartland.org/publications-resources/publications/the-effects-of-the-exemption-of-school-construction-projects-from-ohios-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?
https://heartland.org/publications-resources/publications/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 at https://heartland.org/publications-resources/newsletters/budget-tax-news, and The Heartland Institute’s website at http://heartland.org.
Whether sending an expert to your state to testify or brief your caucus, hosting an event in your state, or simply sending you further information on the topic, Heartland can assist you. If you have any questions or comments, contact Heartland Institute Government Relations Manager Lindsey Stroud at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
