Ohio's Prevailing Wage Law: A Costly Burden
Suppose your school board decides it wants to remodel classrooms in the local high school during the summer break and receives bids from two competing companies. The first bid is from a well established, unionized company that says it can do the job for $25,000 in two weeks. They have the experience and resources to do the job. The second bid is from a small, entrepreneurial start-up firm consisting of graduates of the local high school. The firm is less experienced but has an excellent reputation for doing high quality work. It will take longer – four weeks – to complete the job, but they are willing to do it for only $15,000. Since the extra two weeks would not matter over the summer break, you’d expect the board to take the less expensive bid, right?
Wrong. In the State of Ohio, the board would have to pay “prevailing wages” and reject the start-up company’s bid even though it was $10,000 less. Sound crazy? In fact, almost every state construction contract in Ohio is awarded at similarly inflated prices, unnecessarily driving up the cost of public construction for everything from roads to schools to playgrounds. This is all because of Ohio’s 1931 prevailing wage law, sometimes called the “Little Davis-Beacon Act” after the federal Davis-Beacon Act of the same year. These laws, and laws like them in 30 states, require “prevailing wages” to be paid on public construction projects. In Ohio, prevailing wages are actually wages paid at union rates.
The primary argument for the prevailing wage law is that it assures a “living wage” for workers. While it may increase wages for a few, it is done in an arbitrary and artificial manner. Rather than allowing all workers to compete for contracts, the law unfairly discriminates against less established companies and non-union workers. Another argument is that higher-priced union firms provide higher quality work. If this were true, why does the private sector choose to contract with lower cost, non-union firms 80 percent of the time? The private sector must believe that these companies produce at the same level of quality at a better price or that the difference in quality does not justify the higher costs.
Ohio’s Legislative Budget Office estimates that the prevailing wage law will cost Ohio’s taxpayers at least $80.1 million and possibly as much as $236.2 million at the state and local levels in Fiscal Year 1996. The financial burden of this law should be reason enough for its repeal. The real outrage of the law, however, is its intended and unintended effects on minorities and low-skilled workers. In 1931, when Ohio’s law was passed, many white construction firms found themselves facing stiff competition from lower cost labor, primarily from African-Americans newly migrating to the North. Rather than lower prices to meet the competition, they lobbied for the prevailing wage law that effectively squeezed minority firms out of the market. The racist origins of prevailing wage legislation have been well documented by the Washington, D.C.-based Institute for Justice in its legislative history of the Davis-Beacon Act.
Proponents of the prevailing wage fail to realize the law’s unfairness to newly established companies, non-union workers, minorities and taxpayers. New Hampshire, Utah, Louisiana, Kansas, Idaho, Colorado, Arizona and Alabama have already repealed their prevailing wage laws. It’s time for Ohio to repeal its own outdated, expensive, and unfair law.
Robert A. Lawson, Ph.D. is Professor of Economics and George H. Moor Chair at Capital University in Columbus, Ohio and a Senior Fellow with The Buckeye Institute.
