Time to Repeal Special Interest ‘Prevailing Wage’ Laws
President Donald Trump has plans for $1 trillion in infrastructure spending as part of his administration’s plan to create jobs and spur economic growth. Democrats in the Senate announced a similar proposal earlier this year. Whether either of these are smart plans for jumpstarting the economy is up for debate. If Congress does pass such an infrastructure plan, however, it is imperative to ensure the best rate of return for tax dollars spent on these projects. The only way to do that is to repeal or exempt such infrastructure projects from existing “prevailing wage” laws that needlessly shield labor unions from competition and raise the cost of taxpayer-funded construction.
Prevailing wage laws act as an arbitrary wage mandate on federal, state, and local government construction projects. Although the specifics of the laws vary, the effects are the same—raising the cost of government infrastructure.
Prevailing wage requirements jack up costs because they peg the wages for specific occupations to the union rate in the area (rather than the average wage), impose burdensome paperwork on employers, and stifle competition. Foremost, setting prevailing wages at the union rate is misguided as only 13.9 percent of construction workers are members of a union. Additionally, setting the prevailing wage equal to the union wage suppresses competition. By forcing all contractors to pay the same, labor costs are shielded from competitive pressures.
Despite inflating the cost of public construction and harming competition, new polling data from the union-backed Smart Cities Prevail finds that voters actually support prevailing wage on government projects.
Normally, however, if you want to find out what people think, you ask them using neutral language. In the Smart Cities Prevail poll, they give the respondent the for-and-against argument in one question. This is not the best way to poll if you are looking for an honest answer.
One poll question states:
They [prevailing wage laws] require contractors on any government funded construction projects—like a road, bridge, or school—to pay workers at least the local market rate for their job where the project is being built.
It is disingenuous to say “local market rate.” For example, at the federal level, prevailing wage laws are significantly above the average local rate. According to Beacon Hill Institute research:
We found that on average the [Davis-Bacon Act] prevailing wage is almost $4.43 per hour, or more than 22%, above the [Bureau of Labor Statistics] average wage when wages are weighted according to the number of workers in each trade and each metropolitan area.
There is little doubt that the poll is politically motivated in order to stem the tide of lawmakers reconsidering the wisdom of prevailing wage laws.
Here is what taxpayers and voters really need to know about prevailing wage laws. The added costs associated with prevailing wage rules are massive. In December 2016, the Congressional Budget Office (CBO) estimated that repealing such requirements in the Davis-Bacon Act could save taxpayers $13 billion on federal construction projects between 2018 and 2026.
State governments also face increased costs caused by prevailing wage laws. For example, in Wisconsin, a state looking at repealing its prevailing wage law, the state and local governments could have saved $300 million on construction costs if not for prevailing wage laws, according to a report from the Wisconsin Taxpayer Alliance.
Other states have realized significant savings from repealing or exempting certain projects from prevailing wage laws. In Ohio, legislation exempted school districts from prevailing wage requirements. Ohio’s Legislative Service Commission examined the impact of the exemption and found savings of over 10 percent.
Ultimately, prevailing wage laws are special interest legislation that exclusively benefit labor unions, not the public good. The real question that needs to be asked of voters is whether lawmakers should demand a good rate of return for taxpayers on public works projects. If the answer is yes, then prevailing wage laws ought to be repealed.