Don't Drink the Tea. Think With the WE.
Apr
2013
5

Belman: Repealing the Prevailing Wage Leaves Taxpayers on the Hook



As the attack on prevailing wages heats up in Michigan, Dale Belman, a professor in the School of Human Resources and Labor Relations at Michigan State University, has stepped forward with a rebuttal of prevailing wage detractors’ claims.

Belman argues that the numbers used by opponents of the prevailing wage are flawed at best and flat out incorrect at worst. A study done over a decade ago by right-leaning Mackinac Center’s Richard Vedder is often the basis for the anti-wage argument, Belman notes. However, new studies from the University of Utah show that not only are those numbers dated and inaccurate, they ignore the many cases in which paying the prevailing wage lowers costs:

The evidence from more thoughtful studies suggests that prevailing wage laws do not raise costs or substantially reduce employment. In a replication of Vedder’s conclusions, professor Peter Philips of the University of Utah found that much of the job gain Vedder attributes to suspension of Michigan’s law was due to arbitrary adjustments and misattribution of general economic growth in the 1990s. When Philips replicates Vedder’s methods for eight other states which repealed or passed prevailing wage laws, the results do not support his contentions.

Other research by Philips suggests that Vedder’s claims that Michigan’s prevailing wage law increase construction costs by 10 percent are significantly overstated. Looking at school costs between Michigan, Ohio and Kentucky allowing for differences in school size, facilities and the time of year finds that prevailing wage laws have no measurable effect on construction costs.

Further research from the University of Utah supports the ‘prevailing wage as cost-cutter’ suggestion for construction projects. This research looks at bids for school construction projects in British Columbia:

In an article in Economic Inquiry, professor Cihan Bilginsoy, also of the University of Utah, found that prevailing wage laws actually led to lower bids on school construction contracts in British Columbia. What’s more, the construction industry does not provide many employee benefits. Only 40 percent of non-union construction employees receive health insurance through their employer. Research by the University of California - Berkeley found that low-wage construction employees on one project cost taxpayers over one million dollars because they used public health care.

These numbers prove what those not drinking the anti-union Kool-Aid already know: prevailing wages do not significantly raise construction costs. To boot, paying regional workers a higher wage means more money enters the local economy both through consumer activity and taxation. Providing health care benefits helps alleviate unnecessary strain on state-run health programs.

In one more example from Utah, Belman points out that the repeal of the prevailing wage often has disastrous consequences on apprenticeship programs.

Prevailing wage laws support improved efficiency through promoting training in the construction industry. The costs of operating apprenticeship systems are included in the wages paid under prevailing wage laws. Training is also encouraged by paying registered apprentices a marginally reduced wage until they finish training. In Utah, repeal of the state’s prevailing wage law caused graduation rates in apprenticeship programs to plunge to 15 percent from 95 percent. Given the shortage of trained construction workers, prevailing wage laws play an important role in the development of skills among construction workers.

Those who wish to repeal prevailing wage laws in Michigan in order to lower costs should take note: only taxpayers lose when wages and benefits are undercut. Through lost tax revenue, increased burdens on state-run health programs and lower quality of work, taxpayers ultimately pay when a race to the bottom agenda, driven by political talking points instead of good policy, takes hold.

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