Prevailing Wage

Why Prevailing Wage is Fiscally Responsible

When I stand dumbly in front of the wall of ketchup options at the local supermarket, the principles that guide my decision are fairly straightforward. I buy the item that offers the greatest utility per dollar—that is to say, the option with the most value. However, when it’s your money and my money (and the money of everybody we know) being spent, the decision becomes more complicated. How can we make sure we are all getting the best value for the taxes we pay?

The answer (at least in the area of public works) is addressed via Competitive Bidding Requirements. These statutes dictate any project even partially funded by tax dollars be awarded to the “lowest responsible bidder”. These requirements were created to cut down on costs, corruption, and get the most out of every tax dollar spent. But that’s not the whole story of how these requirements affect taxpayers.

Competitive Bidding is an Incomplete Policy

Tim Watkins, Education & Policy Coordinator at Fair Contracting Foundation of MN, spoke to me about the drawbacks of Competitive Bidding Requirements and the downward spiral they create. All too often, this style of bidding results in the contending firms lowering their labor standards—which consequently affects the final product & efficiency of construction.

“If you have that race to the bottom, you’re not ultimately going to get the best value for publicly funded construction. Good value is important because when you’re building a 50 year bridge, you don’t want to have to fix it in 20 years,” Tim explained.

What is Prevailing Wage?

The phrase “Prevailing Wage” itself refers to the “minimum hourly wage employers must pay certain employees who work on construction projects where state dollars are used to fund the construction.” Prevailing Wage laws, also called Common Construction Wage laws, require that companies bidding on a government contract pay their workers at this established minimum rate.

Opponents of Prevailing Wage argue that it raises project costs and results in inefficient tax expenditures. The irony of this is that even when competitive bidding practices are followed in effort to conserve tax dollars it doesn’t actually save money. How could that be true? The whole argument against prevailing wage is to save money, so why isn’t money saved when prevailing wage laws are repealed?

The percentage of budget allocated to wages and benefits during the course of a project is relatively small, about 23% according to the Midwest Economic Policy Institute. But this 23% has a disproportionate and inverse effect on the rest of construction costs. A study by the Census Bureau shows that worker productivity drops by at least 14% per worker in states that repeal Prevailing Wage laws. This is because contractors in those states have hired workers with less skill in order to bring their costs down to competitive bidding standards. So while those contractors may offer lower bids on the surface, over the course of a project their construction costs rise as worker productivity falls. At best, construction costs with and without Prevailing Wage laws are a wash. At worst, jobs, communities, and entire industries can be hurt.

Lowering Prevailing Wage Hurts Employment

Even the act of ‘loosening’ Prevailing Wage can have a deleterious effect on employment numbers. The Illinois Economic Policy Institute closely monitored side effects when in 2012 Indiana relaxed the Prevailing Wage laws. From 2012 to 2015 every state surrounding Indiana was able to raise construction wages by an average of 6.6%, yet Indiana had to cut construction wages about 2.4%. Indiana counties along the border of Kentucky lost jobs in almost perfect proportion to jobs gained by Kentucky- no coincidence. In 2015, Indiana decided to double down, and repeal Prevailing Wage altogether. Ed Soliday, a Republican in Indian’s House of Representatives, said the repeal “hasn’t saved a penny.”

Prevailing Wage Builds Communities

The most important aspect of Prevailing Wage is the degree it incentivizes businesses to reinvest in themselves. Large projects funded by government spending require specialized equipment, sophisticated planning, and skilled hands. The material aspects involved are costly, and the apprenticeship programs used to train skilled workers are funded through a percentage of the local construction revenue. Without those investments, the technical capabilities of the local labor pool atrophy over time. And when local apprenticeships do create skilled labor, that labor is undervalued. In an environment without Prevailing Wage, communities that allow bidders to pay minimum wage will be built with low-quality outside labor, instead of the capable tradesmen fostered by those communities operating under Prevailing Wage.

Those communities which do implement Prevailing Wage laws position themselves to receive long lasting dividends. Local trade workers and their families not only have greater disposable income to spend within their communities, but the contractors they work for will continue to have reason to reinvest in their labor and infrastructure. By investing in a community it will grow, and that is exactly what Prevailing Wage promotes. Here in Minnesota, our Prevailing Wage laws fund apprenticeship programs. Organizations like the Southeast Minnesota Building and Trades ensure Minnesota will have a healthy supply of tradesmen to support the community for generations.

Find out more about local apprenticeship programs.

References

http://www.dli.mn.gov/ls/prevwage.asp

https://illinoisepi.org/site/wp-content/themes/hollow/docs/prevailing-wage/ilepi-economic-commentary-southern-in-case-study1.pdf

https://midwestepi.org/2018/01/29/study-repeal-of-indianas-prevailing-wage-law-fails-to-deliver-as-promised/

Who is SEMNBCT?

The Southeastern Minnesota Building and Construction Trades Council (SEMNBCT) is comprised of local trade unions, and includes union representatives from the entire building and construction industry.

SEMNBCT exists to provide leadership to union members, promote and support the development of advanced knowledge by skilled workers, and offers guidance and support to owners and signatory contractors.