Smart Cities Prevail is dedicated to providing the most relevant and informative resources that allow our communities to make educated decisions on the Prevailing Wage issue. Below is a collection of research and case studies collected from cities and states who have kept or eliminated Prevailing Wage.
- The Impact of Prevailing Wage Laws on Military Veterans: An Economic and Labor Market Analysis, 2016.
Currently, veterans are more likely to work in construction than non-veterans. The study finds that veterans benefit substantially from prevailing wage policies and make construction employment more attractive for veterans. The economic outcomes of veterans would be significantly altered if all states with strong or average prevailing wage legislation weakened or repealed their laws.
- The Economic, Fiscal, and Social Impacts of State Prevailing Wage Laws: Choosing Between the High Road and the Low Road in the Construction Industry, 2016. Opponents of prevailing wage laws claim that repealing or weakening the wage policy will save taxpayer dollars, yet 75% of recent peer-reviewed studies indicate that construction costs are not affected by prevailing wages. However, the absence of prevailing wages increases taxpayer burdens by increasing the likelihood that construction workers will earn incomes below the poverty level, become more dependent on public assistance, and will not have health insurance and retirement benefits. Furthermore, prevailing wages perform an important economic development function by reducing the leakage of construction funds, jobs, income, and spending from the local economy. Weakening or repealing prevailing wages does not reduce construction costs, but increases poverty and decreases economic activity. In fact, weakening or repealing state-level prevailing wage laws in the 25 states that currently have strong or average wage policies would have negative economic, fiscal, and social impacts on the U.S. economy.
- The Cost of Repealing Michigan’s Prevailing Wage Policy: Impacts on Total Construction Costs and Economic Activity, 2015.
Summary: Michigan’s proposed prevailing wage repeal would eliminate more than 11,000 jobs, $1.7 billion in economic output, $28 million in local and state tax revenue, and will export nearly $700 million in construction investments out of state every year.
- Kevin Duncan, Ph. D., Alex Lantsberg, MCP, AICP, How Weakening Wisconsin’s Prevailing Wage Policy Would Affect Public Construction Costs and Economic Activity, 2015.
Summary: The belief that reducing wages will reduce costs is based on a simple and incomplete understanding of the construction industry. A fundamental problem with this assertion is that labor costs are a low percent of total construction costs. For the types of projects covered by Wisconsin’s prevailing wage standard, labor costs and benefits are approximately 20% of total costs. Therefore, it is not possible to obtain substantial savings from a cost component that is such a low percent of the total.
- Building the Golden State: The Economic Impacts of California’s Prevailing Wage Policy
Summary: If prevailing wage were eliminated in California, it would cost the state more than 17,500 jobs – not just in the construction industry, but across the economy. In addition, more than $1.4 billion in wages and $1.5 billion in economic output would be sacrificed. It would also lead to greater inefficiencies in the construction industry with 5% greater materials use and per worker productivity declines of 12%.
- Atalah, Alan, Ph.D. Impact of Prevailing Wages on the Cost Along the Different Construction Trade [sic], International Journal of Economics and Management Engineering (IJEME), 2013
Summary: In 1997, the Ohio Senate passed Senate Bill 102 which established the Ohio School Facilities Commission as a separate agency to oversee the rebuilding projects of the public schools in Ohio. To lower the construction cost, the bill exempted construction contractors from paying Prevailing Wages on these projects. The purpose of this research was to investigate this hypothesis through the statistical analysis of 8,093 bids received for the schools’ construction from the year 2000 to 2007. Union contractors who paid their workers union wages and non-union contractors who did not pay Prevailing Wages bid these projects. The hypothesis that Prevailing Wage laws (PWL) increased the construction cost was tested by comparing the bids/SF from both groups (union and nonunion) along the different construction trades. The research indicates that there was statistical significant difference between the bids/SF for union contractors and the bids/SF for non-union contractors for only the following trades: electrical, equipment, existing conditions, exterior improvements, wood, plastics and composites, and furnishings. There was no statistical significant difference in trades’ bids.
- A Weakened State: The Economic and Social Impacts of Repeal of the Prevailing Wage Law in Illinois, University of Illinois at Urbana-Champaign and Michigan State University, 2013.
Summary: Findings from the study indicate that Illinois’ Prevailing Wage law is associated with positive labor market outcomes for construction workers. Prevailing Wages do not lead to increases in costs of public construction projects. Prevailing Wages encourage apprenticeship training in the construction industry. Repeal of Illinois’ Prevailing Wage law would result in 3,300 job losses throughout the state, $1 billion decrease in GDP, and $44 million dollars in lost tax revenue. With repeal more construction workers would suffer fatal work-related injuries and construction workers would lose many of their work-related benefits.
- Phillips, Peter, Ph.D., University of Utah, Mr. Rosaen’s Magical Thinking: A Short Evaluation of Alex Rosaen’s 2013 Prevailing Wage Methodology, 2013
Summary: This paper critically reviews Alex L. Rosaen, The Impact of Michigan’s Prevailing Wage Law on Education Construction Expenditures, Anderson Economic Group, LLC, Commissioned by the Associated Builders and Contractors of Michigan, 2013. It is shown that Rosaen’s estimates of the Prevailing Wage regulatory impact on Michigan educational capital outlays swing widely from negative to positive based on the assumptions used in his model. Further it is shown that the bases for Rosaen’s assumptions are outdated and miscalculated. An alternative methodology using statistical tests is suggested that provides more stable results. Two alternative examples are presented. This critique concludes that Rosaen’s estimates are unreliable.
- Kim, Jaewhan, Ph.D., et al., Prevailing Wage Regulations on Contractor Bid Participation and Behavior: A Comparison of Palo Alto, California with Four Nearby Prevailing Wage Municipalities, October, 2012.
Summary: The authors of this study analyzed bid results from 140 municipal projects built in 2006 and 2007 in five adjacent Silicon Valley cities. Unlike its neighbors (San Jose, Sunnyvale, San Carlos, and Mountain View), the City of Palo Alto does not require the payment of Prevailing Wages to construction trades people who work on municipally financed projects. The Silicon Valley data contradict claims that Prevailing Wage requirements discourage contractors from bidding on projects. After performing numerous statistical tests, the researchers concluded: “none of these results are consistent with the hypothesis that the absence of Prevailing Wage regulations attracts more contractors. Furthermore, we did not find that bids on Palo Alto non-prevailing wage jobs were lower than the engineer’s estimate relative to bids on surrounding municipal Prevailing Wage work.” The study underwent “blind” peer review and was published by the academic journal Industrial Relations, a publication of the University of California.
- Working Partnership USA, Economic, Fiscal and Social Impacts of Prevailing Wage In San Jose, California, April 2011.
Summary: Municipal building projects covered by a Prevailing Wage policy employ a higher proportion of local contractors and local workers. Prevailing Wage laws therefore help reduce the leakage of local taxpayer dollars by directing public construction expenditures into the local economy. If Prevailing Wage coverage is removed from a municipal building project, then roughly 6% of the project’s value leaks from the Santa Clara County economy. If Prevailing Wage had not applied to San Jose’s 2007-2012 municipal building projects: total economic activity in the County would have fallen by $164 million; 1,510 fewer local jobs would have been created in the County; in addition to construction, the economic sectors with the greatest job loss induced by the loss of Prevailing Wage include retail and food service (88 jobs) and health (57 jobs).
- Mahalia, Nooshin, Prevailing Wages and Government Contracting Costs: A Review of the Research, Economic Policy Institute, 2008.
Summary: The report concludes that, “an overwhelming preponderance of the literature shows that Prevailing Wage regulations have no effect one way or the other on the cost to government of contracted public works projects.” Workers on Prevailing Wage projects tend to be higher skilled, better trained, more productive, and less prone to serious and fatal injuries on the job site. Prevailing Wage regulations contribute to enhanced tax revenues, and higher wages support local consumer spending. Prevailing Wage regulations discourage unscrupulous contractors who typically cheat on payroll taxes, employ low skilled workers and shirk health and safety requirements on the job site. Prevailing Wage regulations also help expand apprenticeship training programs which enrich the community by offering avenues for residents to secure good paying middle class jobs. Removing Prevailing Wage regulations and thereby lowering wage and benefit standards on local projects shifts substantial costs onto the tax payer by pushing workers into requiring more subsidies in healthcare, housing and other social services. It also displaces or diminishes middle class jobs that have traditionally supported local consumer spending which hurts local businesses.
- The Fiscal Policy Institute, The Economic Development Benefits of Prevailing Wage, May, 2006.
Summary: An extensive economics literature shows that Prevailing Wage in construction means more cost-effective construction, and more skilled and better-paid workers. Skilled construction workers who receive higher wages are about 20% more productive than less skilled workers. All else being equal, higher productivity means lower unit costs. Industrial development authorities exist to enhance local economic development. Applying Prevailing Wage requirements to publicly-subsidized construction is likely to lead to a series of benefits that is the flip side of what has happened where Prevailing Wage has been repealed: higher construction wages, greater health and pension coverage, greater apprenticeship opportunities for less educated workers, and the more effective functioning of the construction labor market overall.
- Phillips, Peter, Ph.D., University of Utah, Quality Construction-Strong Communities: The Effect of Prevailing Wage Regulations on the Construction Industry in Iowa, 2006.
Summary: Productivity was found to play a major role in explaining why less expensive labor does not always result in lower government construction costs in the absence of Prevailing Wage laws.In prevailing wage states, construction workers earned an average of 15% more in wages and about 25% more in Social Security, unemployment insurance, and worker’s compensation.States with Prevailing Wage laws showed 13-15% more value-added per worker compared to states without the legislation.The result showed that Prevailing Wage laws raised productivity, possibly by inducing better management of projects, higher training standards, and more capital investment.Non-prevailing wage states created an environment where contractors would cut corners on safety, training, and payroll regulations in an attempt to offer lower bids. In Iowa, an estimated 2,500 workers were misclassified as independent subcontractors in order to save on payrolls. The misclassification of workers deprives the state of worker compensation and unemployment insurance payments, and allows the contractor to dodge health insurance, pension, and Social Security contributions.
- Gasperow, Bob, Construction Labor Research Council, Federal Highway Administration, Do Higher Wages Raise Labor Costs?, Reported, May, 2001.
Summary: A 14-year study of highway construction in the United States from 1980-1993, found that skills and productivity, not differences in wage rates, are the critical determiner of bottom line labor costs. The federal study found that the payment of Prevailing Wages and the use of higher paid; higher skilled workers reaped an average of $123,057 per mile in savings. The study found that “there is no basis to the claim that lower wage rates result in lower construction costs.”
- Phillips, Peter, Ph.D., A Comparison of Public School Construction Costs In Three Midwestern States That Have Changed Their Prevailing Wage Laws in the 1990s, February, 2001.
Summary: A study of public school construction costs in Kentucky, Ohio and Michigan over the period 1991-2000, found that the use of Prevailing Wages raised school construction costs by less than 1%, a statistically insignificant result. Instead of raising costs, the study found that the payment of Prevailing Wages and benefits forces contractors to hire and train a more skilled and productive labor force. The failure to pay living wages reduces wages, training and health and pension benefits. As a result trained workers migrate to other areas and young less trained workers have an injury rate 15% higher than trained workers.
- Phillips, Peter, Ph.D., Presentation on Prevailing Wage Laws, Michigan Prevailing Wage Symposium, March, 1999.
Summary: A study of school construction costs from 1992-1998 for 104 schools found that with the payment of Prevailing Wages average costs were $99 per square foot. When Prevailing Wages were not paid the average cost was $104.
- Waddoups, C. Jeffrey, Ph.D., Employer-Sponsored Health Insurance and Uncompensated Care: The Role of the University Medical Center in Clark County, January, 1999.
Summary: A study of the University Medical Center (UMC) in Las Vegas (Clark County, Nevada), found that the failure to pay Prevailing Wages and health benefits shifts the burden of health care from employers to public health “safety nets.” This adds costs to taxpayers as it allows employers to “free-ride” at the public’s expense. The additional cost of this shift represents one-third of all uncompensated care at UMC, costing the taxpayers over $10 million per year.
- Prus, Mark, Ph.D., Prevailing Wage Laws and School Construction Costs: An Analysis of Public School Construction In Maryland and the Mid Atlantic States, January, 1999.
Summary: A study for the Prince George County’s County City Council in Maryland compared school construction in three mid-Atlantic states (Delaware, Pennsylvania and West Virginia) with Prevailing Wages between 1991-1997 with two states (North Carolina and Virginia) that did not pay Prevailing Wages. The study found that the slight increase in costs for states with Prevailing Wages was statistically insignificant. Further, future savings in maintenance costs because of higher quality construction produced additional savings for the states.
- Phillips, Peter, Ph.D., University of Utah, Kansas and Prevailing Wage Legislation, Prepared for the Kansas Senate Labor and Industries Committee, 1998.
Summary: After repeal of Kansas’ Prevailing Wage law in 1987; Construction wage incomes fell by 10% throughout construction industry; Employer health insurance and retirement contributions fell by 17%; Apprenticeship training fell by 38%. Minority apprenticeship training fell by 54%; serious injury rates in Kansas construction increased by 21%; the projected 6%-17% saving rates on state construction costs used to sell the repeal failed to materialize. Per square foot construction costs for schools are virtually the same across the Great Plains states regardless of Prevailing Wage regulations.
- Dillon, Rodger, California Senate Office of Research, Potential Economic Impacts: Proposals of the Department of Industrial Relations to Alter Methodology Relating to Prevailing Wages, May, 1996.
Summary: A proposal to lower Prevailing Wages has the unintended consequence of reducing $800 million in total tax revenues, far overshadowing the expected $160-200 million in savings from the proposal. The proposal would also shift huge numbers of construction workers to public health care systems because of the commensurate loss of health insurance and pension benefits. The proposal would also make public work sites more dangerous because studies have shown that union sites are safer because of the additional safety training received by union workers. Finally, the reduction of Prevailing Wages would reduce the number of minority workers on public works sites. The proposal was not adopted.
- Reich, Michael, Ph.D., UC Berkeley Institute of Industrial Relations, Prevailing Wage Laws and the California Economy, February, 1996.
Summary: A reduction in Prevailing Wages would have the result of lowering tax revenues, reduce job site productivity, reduce worker training and job site safety, decrease the numbers of minorities in training programs, reduce health care and pension benefits, impact negatively on local and state health care systems, and slow the expansion of the California economy.
- Phillips, Peter, Ph.D., et al, University of Utah, Losing Ground: Lessons from the Repeal of Nine ‘Little Davis-Bacon’ Acts, February, 1995.
Summary: A major study of nine states (Alabama, Arizona, Colorado, Florida, Idaho, Kansas, Louisiana, New Hampshire, and Utah) that had repealed Prevailing Wages found that the repeals had negative impacts on all state budgets. The loss of construction earnings and sales tax revenues had an adverse impact, and cost overruns on road construction also increased costs. In Utah, for example, these cost overruns tripled after the repeal. Training was reduced by 40%, minority representation was reduced in training programs and injuries increased by 15%.The study concluded that if the federal Davis-Bacon Act was repealed that federal tax revenues would drop by $1 billion per year, and that there would be 76,000 additional workplace injuries in construction annually, with more than 675,000 work days lost each year. These increases would be felt in increased workers compensation costs and costs placed on public health systems by workers without health and pension benefits.
(All of these studies have findings consistent with the studies summarized above).
- Petersen, Jeffrey, Ph.D., School of Public Health, University of California, Berkeley, Health Care and Pension Benefits for Construction Workers: The Role of Prevailing Wage Laws, April, 1997.
- Bilginsoy, Cihan, Department of Economics, University of Utah, Apprenticeship Training and Prevailing Wage Laws, February, 1996.
- Carlson, Richard, Spectrum Economics, Inc., Impact of Repealing California’s Prevailing Wage Laws on California’s Local Economies, February, 1996.
- Petersen, Jeffrey, Ph.D., School of Public Health, University of California, Berkeley, The Effects for California Construction Workers from Changing the Method of Calculating Prevailing Wage Benefits, February. 1996.
- Phillips, Peter, Ph.D., Economics Department, University of Utah, Results of a Multi variate Regression Analysis of Construction Workers Incomes with a Focus on the Implementation of Prevailing Wage Policies, February, 1996.
- Prus, Mark, Department of Economics, SUNY, Cortland, The Effect of State Prevailing Wage Laws, January, 1996.
- Waitzman, Norman, Ph.D., Department of Economics, University of Utah, Worker Beware: The Relationship Between the Strength of State Prevailing Wage Laws and Injuries in Construction, 1976-1991, 1996.