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Feb
2016
11

STUDY: Economy Would Lose $65,000,000,000 if Prevailing Wage Was Repealed Nationally

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Researchers from the Illinois Economic Policy Institute, Colorado State University-Pueblo, and Smart Cities Prevail have completed what might be the most comprehensive study of the economic, social, and project cost impacts related to state prevailing wage laws.  According to the study, if the 25 states with strong-to-average prevailing wages were to weaken or repeal their laws, it would result in the loss of 400,000 workers, cause a $65 billion dip in the national economy, and squander $8 billion in tax revenue.

The report, “The Economic, Fiscal, and Social Impacts of State Prevailing Wage Laws: Choosing Between the High Road and the Low Road in the Construction Industry,” utilizes industry standard IMPLAN modeling software and industry comparisons between states to assess the impact of prevailing wage policies on a variety of economic and social factors, including: job creation, wages, worksite productivity, rates of in-state contracting, impacts on taxpayers, reliance on government assistance programs, and effects on communities of color and veterans.  

The study is the first time to look at the existing body of research that has been presented on both sides of the issue regarding overall project costs. According to the report, 75 percent of recent peer-reviewed studies find that construction costs are not affected by the prevailing wage:

“Our research shows that the debate around the cost impact of prevailing wage policies, in many ways, mirrors the debate on policy questions like climate change – where some policy makers rely on ideological bias or an incomplete understanding of an industry to promote conclusions that are simply not supported by academic consensus.  

We found that the non-peer reviewed studies that suggest cost savings from prevailing wage repeal tend to focus exclusively on wage differences, which ignore the fact that prevailing wage standards dramatically reduce material and fuel expenditures and reliance on taxpayer-funded welfare assistance, while increasing worksite productivity.”

The cost side concerns the owners, but there are many positive outcomes for workers as well, the report asserts.  States with prevailing wage laws are 8% more likely to have health insurance and 4% more likely to have retirement plans.

Other key findings include:

Prevailing wage laws reduce reliance on public assistance:

States with weak or no prevailing wage laws currently spend $367 million more per year on food stamps and Earned Income Tax Credits for blue collar construction workers than states with average/strong PWL.

Prevailing wage laws increase income tax contributions:

Construction workers in states with strong/average prevailing wage laws contribute over $5.3 billion more in federal income taxes (on average after credits and deductions) per year than their counterparts in weak/no law states.

Prevailing Wage Repeal Would Strain public budgets:

If all 25 states with strong/average prevailing wage laws weakened or repealed their policies, the loss in federal income taxes and added public assistance expenditures would cost American taxpayers at least $4 billion more every year.

Repeal of prevailing wage would disproportionately impact military veterans:

Military Veterans are employed in construction at a higher rate than in other industries And they comprise a larger share of the construction workforce in Prevailing Wage states than in non prevailing wage states.

Prevailing wage laws close the income gap in construction:

Construction workers in Prevailing Wage states earn 17% more than their counterparts in states without PWL policies. Repealing prevailing wages is associated with income declines of up to 8%, pushing low earners onto public assistance. Prevailing wage laws have no effect on the incomes of construction managers and supervisors.

The study also individually looked at two nearby states, Michigan and Wisconsin, which are considering weakening or repealing their prevailing wage standards. The report cautions against these actions, saying:

Michigan is considering repeal of PWL:

Research shows that the state economy would decrease by $1.5 billion, lose over 9,700 total jobs, and lose over $55 million in tax revenue from the leakage of construction expenditures to firms in neighboring states.

Wisconsin just weakened its PWL:

Research shows the state economy will decrease by $1.1 billion, lose over 6,700 total jobs, and lose over $40 million in tax revenue from the leakage of construction expenditures to firms in neighboring states.

For those without time to peruse the full report, a short fact sheet has been provided.

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