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Knowing just enough to be harmful with prevailing wage

By Dave Branson

Dave Branson is the executive director of the Building and Construction Trades Council of South Central Wisconsin.

Dave Branson is the executive director of the Building and Construction Trades Council of South Central Wisconsin.

Wisconsin taxpayers are being sold a bill of goods by those who seek repeal of our state’s prevailing-wage laws, yet have dangerously little understanding of today’s construction market.

Prevailing-wage standards provide value through efficient work performed safely, while ensuring those employed in Wisconsin’s construction industry have a path into the middle class. Furthermore, the state’s Legislative Fiscal Bureau has concluded that “… the evidence on prevailing wage effects generally range from relatively small effects to no statistically significant effects.”

In fact, eight state agencies have concluded that repeal would have an “indeterminate impact” or “no effect” on state and local government construction costs.

The results of the Fiscal Bureau analysis reaffirm the essential flaw found in the reasons put forward by those who favor repeal: Namely, that there is no good evidence proving that a state has actually managed to save money by repealing its prevailing-wage laws.

For example, Kentucky lawmakers chose in 1996 to apply their state’s prevailing-wage law to state-funded school construction. Ohio, meanwhile, went in exactly the opposite direction the following year, exempting school construction.

According to the arguments often used in support of repeal, Kentucky should have been faced with higher school construction costs, whereas Ohio should have seen a large decrease.

But the median cost per square foot of school construction did not increase in Kentucky, nor did it drop in Ohio.

All of which raises the question: If Ohio’s state government didn’t see savings after prevailing-wages no longer applied to school projects, where did the money go?

Most modern research on this subject has favored econometric methods over the simplistic “wage differential” methods frequently used by those who favor repealing prevailing wages. The more-nuance method has consistently found that there is no statistical relationship between prevailing-wage laws and contract costs.

Given this result, it would be reasonable to conclude that the money taken out of Ohio workers’ pockets when the state’s prevailing-wage law was repealed was simply absorbed by the other participants on construction projects, including architects, engineers, financiers, insurance carriers and project suppliers.

The pro-repeal crowd has predicted that getting rid of prevailing-wage laws will reduce the cost of public projects by as much as 10 percent. What they have consistently failed to acknowledge is that, in order to obtain this result, construction wages will quite likely have to be reduced by as much as 50 percent. That’s because only about 20 percent of labor costs on public construction are actually blue-collar labor costs, including costs for health, pension, and training investments.

It is also important to note that, in states with prevailing-wage laws, private companies pay much more for employees’ pension and health benefits, as well as for workforce training.

And that is vitally important to Wisconsin taxpayers. For it’s they who would have to pick up the slack if the construction industry ceased paying for the long-term costs of training the next generation of skilled craft workers, as well as dealing with long-term retirement costs and similar matters.

When people say, “We can save money by getting rid of prevailing-wage laws,” the questions that need to be asked are: Where is the money going to come from to pay for the construction worker who gets sick or injured on the job? Where is the money going to come from to assist the retired construction worker? And where is the money going to come from to pay for the training of the next generation of safe and qualified construction workers, especially if the industry itself doesn’t pay these costs?

When prevailing wage laws are removed, responsible contractors must increasingly compete against “low road” contractors who eschew the payment of health and retirement benefits, and who frequently rely on easily exploitable employees who oftentimes hail from out of state and are misclassified as “independent contractors.” These circumstances give rise to extremely powerful incentives to cut costs in order to secure a winning bid, which then leads to a loss of opportunity for Wisconsin residents and the erosion of communities’ wage and benefit standards.

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