Prevailing Wage exemption provides schools with lower costs, higher quality construction
A recent Ohio Legislative Budget Office report by economist Allan Lundell investigates the effect of exempting school districts from prevailing wage laws. [1] The study confirms previous research that suggests the benefits of such exemptions overshadow the negative effects.
The prevailing wage law in Ohio dates from the Depression era and was an attempt to protect local construction labor from lower wage itinerant workers. [2]
A better, cheaper product for schools
But according to Lundell’s study, school districts exempted from prevailing wages report no increase in their costs, with most citing a decrease. Few mention any quality decrease while the majority report either comparable or increased construction quality. [3]
Earlier studies on overall prevailing wage repeals back the results of Ohio’s test case in school construction. Ohio, along with eleven other states, is listed as having "strong" jurisdiction in this area. [4]
Union wage rates are 18 percent higher than market rates in Ohio, leading to an additional expense of $80 to 236 million for taxpayers on state construction. [5]
In Michigan (also a "strong" state), where prevailing wage was briefly repealed, one study indicated that the prevailing wage law reduced employment in the construction sector and lowered its worker output. [6]
In addition, poverty rates are higher, while per-capita income growth rates and population migration rates are lower in "strong" states than in those without prevailing wages. [7]
Racist roots
Prevailing wage acts have their roots in attempts to prevent, in the words of one U.S. Congressman in the 1930s, "cheap colored labor" from flooding the marketplace. While this may no longer be the overt motivation behind Ohio’s legislation, research suggests the results remain in effect, with minorities underrepresented for the industry in the twelve strong prevailing wage states. [8]
Notes
[1] Allan Lundell, "A Study of the Effects of the Exemption of School Construction and Renovation Projects from Ohio’s Prevailing Wage Law: An Interim Report of a Five-Year Study, Year Two" (Columbus, Ohio: Ohio Legislative Budget Office, January 2000).
[2] Allan Lundell, "Prevailing Wage Laws," Policy Brief (Columbus, Ohio: Ohio Legislative Budget Office, January 2000), p. 1.
[3] "Of those districts that commented on project costs, 62% reported a decrease in costs. No district reported an increase in costs. Of the districts that commented on the quality of construction, 98% reported either no change in quality or an improvement in quality. Only one district reported a decrease in the quality of construction" (Lundell, "Effects of the Exemption of School Construction").
[4] Richard Vedder, "Michigan’s Prevailing Wage Law and Its Effects on Government Spending and Construction Employment: Construction Costs and Employment Rates Are Analyzed for Recent Periods with and without a Prevailing Wage Law" (Midland, Mich.: Mackinac Center for Public Policy, September 1999), p. 7. "The states can be divided into two categories, the first including the 18 states without prevailing wage laws, and the second 33 states (counting the District of Columbia) with such legislation. Additionally, 12 states, including Michigan, can be subcategorized as having ‘strong’ prevailing wage laws." These include Michigan, Illinois, Missouri, Rhode Island, Minnesota, Ohio, Washington, Hawaii, California, New Jersey, New York, and Massachusetts.
[5] Jeff Williams, "Prevailing Wage Law Costs Ohio Taxpayers Millions," Perspective (Columbus, Ohio: Buckeye Institute for Public Policy Solutions, October 1996), pp. 1-2.
[6] "The 18 states without any prevailing wage law (except, of course, for federal legislation) in 1993 had 44.38 construction workers per 1,000 workers, compared with 33.25 for the 12 states having ‘strong’ prevailing wage jurisdictions" (Vedder, p. 7). An increase of nearly 48 percent occurred in the number of new Michigan construction jobs per 1,00 total new jobs during the period of the prevailing wage law repeal (p.12). "Output per construction worker was actually about four percent higher in the states without prevailing wages" (Vedder, p. 16).
[7] The poverty rate in 1994 for states with no prevailing wage law was 13.67%, while it was 14.56% for states with "strong" prevailing wage laws (Vedder, p. 20). "From 1988 to 1996, per capita income rose on average 49 percent in the states without any prevailing wage, compared with 42.9 percent in the states with strong prevailing wage laws" (Vedder, p. 19). From 1980 to 1996, 2,676,800 native-born Americans moved from "strong" states to other states, while states without prevailing wage laws gained 2,541,800 from other states (Vedder, p. 18).
[8] "Rep. Roger Bacon was prompted to introduce his bill (the Davis-Bacon Act) in 1931 after witnessing one contractor’s use of black Alabama laborers to construct a government hospital in Rep. Bacon’s Long Island district" (Vedder p. 4). While there were fewer construction jobs for everyone in relation to the total labor force in Michigan, the disparity for whites was only 20% when compared with national numbers, although it was greater than 40% for African-Americans (Vedder p. 17).
