Testimony before the Missouri Economic Development Committee
Matthew Glans, Senior Policy Analyst, The Heartland Institute
February 6, 2018
Chairperson Rehder and members of the committee, thank you for giving me the opportunity to submit testimony on this important issue.
My name is Matthew Glans, I am the senior policy analyst at The Heartland Institute, a 34-year-old national nonprofit research and education organization. Heartland’s mission is to discover, develop, and promote free-market solutions to social and economic problems. The Heartland Institute is headquartered in Illinois and focuses on providing national, state, and local elected officials with reliable and timely research and analyses on important policy issues.
A prevailing wage is the average wage paid to laborers in a designated region. Prevailing wage laws require contractors to provide wages based on union averages 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 and risks losing the contract.
Instead of allowing market forces and competition between businesses to determine wages, prevailing wage laws control wages, often for political purposes, at taxpayers’ expense. Prevailing wages are typically set significantly higher than the normal market level, pushing costs higher. Government projects are often criticized for consistently operating over budget, and prevailing wage laws are a central cause. They force contractors to establish labor costs with no consideration for the type of work or the skill of their employees.
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 for public construction projects.
Recently, local and state governments have started 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 states mandate 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 fewer jobs or higher prices for contracted goods and services.
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 during a 10-year period. The study found the common construction wage (a form of prevailing wage) cost Michigan taxpayers $2.24 billion in increased costs, an annual average of $224 million.
In Nevada, a 2011 study by the Nevada Policy Research Institute estimated the state’s common construction wage law increased the cost of public works projects by $625 million in 2009 and $346 million in 2010.
Since ending its prevailing wage requirements, Ohio has seen a measure of success in bringing down construction costs. In 1998, the Ohio General Assembly exempted construction undertaken by school districts from the state’s prevailing wage laws. In 2002, the Ohio Legislative Service Commission examined the effects of this change and found exempting Ohio schools from the prevailing wage law saved taxpayers $487.9 million on construction costs over a four-year period between 1998 and 2002.
In previous testimony given here in Missouri, Heartland Research Fellow Jesse Hathaway pointed to important data from Kentucky government researcher Mike Clark, who compared the labor costs for prevailing wage projects to the cost of projects not covered by prevailing wage laws but involving the same workers. Clark found prevailing wage laws increased costs of government projects while generating no improvements in quality or safety.
“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,” Clark wrote.
Thank you for you for giving me time to speak today.
For more information about The Heartland Institute’s work, please visit our websites at www.heartland.org or http:/news.heartland.org, or call Lindsey Stroud at 757/354-8170 or [email protected]