Towards the High Road in the New Hampshire Construction Industry: The Impact of a State Prevailing Wage Law
Prevailing wage policies specify wage and benefit standards for construction projects paid for with public funds. In recent years, these policies have been the subject of vigorous debate in city councils, state legislatures, and the United States Congress. Often missing from the discussion is the broader effect of prevailing wage on the overall economy.
Prevailing wage laws were first established in the 1930s — both federally and in many states — to create a level playing field for all contractors and to protect against public construction projects driving down local wages and benefits in the construction industry. Some states have strong prevailing wage laws, some have no prevailing wage laws, and still others are somewhere in between.
This study poses the following question: “What would be the economic impact of establishing a prevailing wage in the state of New Hampshire?” By protecting local wage rates from market distortions associated with public construction procurement, prevailing wages expand work for local contractors and construction workers. Thus, New Hampshire could expect an increase in the amount of construction work that is completed by in-state contractors with a prevailing wage policy.
Using IMPLAN software — the industry standard in economic impact analysis — along with data from official government data bases (the Census of Construction, Current Population Survey and American Community Survey), the effects of prevailing wage laws were analyzed, and the outcomes were compelling.
Our research concludes that establishing a prevailing wage would have broad positive impacts across the New Hampshire economy. These impacts include:
- A net gain of 1,710 to nearly 4,000 jobs – not just in the construction but across all industries. These jobs would be created on a permanent basis after a phase-in period of a few years. The size of the job gain within the range above depends on the magnitude of the recapture of state construction business by in-state contractors with a prevailing wage law. Evidence from New Hampshire and from New England states with effective prevailing wage laws points to a potential for recapture that would create almost 4,000 jobs economy-wide. National comparison of states with and without effective prevailing wage laws suggests a more modest amount of recapture that would support about half as many jobs.
- An increase in economic activity across all industries of $298 million to $681 million.
- Greater efficiencies in the construction industry with 7% less materials use.
- An increase in state and local tax revenues in the range of $7.3 million to $17 million.
An effective prevailing wage law would also substantially improve outcomes for workers.
- Construction occupation wage and salary income would increase by an estimated 19%, with larger increases for lower-wage construction workers. Effective prevailing wage laws counter the depressing effect of state low-bid contracting laws on construction industry wages.
- An estimated 2,515 more New Hampshire construction workers would receive health benefits through their job and an estimated 1,422 more would receive pension benefits.
- Roughly 600 fewer construction workers would receive food assistance (through Supplemental Assistance for Needy Families or SNAP) and another 600 would no longer receive the Earned Income Tax Credit (EITC).
Similar to the benefits of the recapture of construction business by local contractors, the positive effects of boosting workers’ wages and disposable incomes would ripple across all sectors of the economy. In addition, by increasing incomes and benefits, and reducing the reliance of households that include construction workers on public assistance, a prevailing wage law would generate savings for federal and state taxpayers.
These positive economic impacts should be considered together with prior research – reviewed in the second half of this report, much of it published in peer-refereed academic journals – showing that prevailing wage does not impact the cost of public construction. Prevailing wage, the research indicates, does positively impact wages, benefits, productivity levels, investment in apprenticeship training, safety levels, and worker experience.
Taken as a whole, the findings in this report indicate that prevailing wage laws shift the way the construction industry uses materials, services, and labor to produce a finished product. These laws increase reliance on the skills and experience of career construction professionals who use materials efficiently, and reduce reliance on low-wage inexperienced workers, sometimes recruited from out of state. Consistent with the idea that “you get what you pay for,” the gain in skills, experience, and materials cost savings with prevailing wage laws offsets the higher per hour wage and benefit costs. Prevailing wage generates benefits for the economy as a whole because wages and benefits would increase and more contractors and employees on state-funded projects would live in New Hampshire.
Interviews with New Hampshire contractors and other construction industry participants also indicate that a prevailing wage law is particularly needed today. After a decade of depressed demand, many workers have left the industry, the workforce has aged and there has been little recent investment in apprenticeship training. As the industry recovers and needs new workers, will it invest adequately in training and pay enough to retain workers as they gain experience and become more productive? Or will it seek low-wage unskilled labor, with negative consequences for construction productivity and job quality, expanding market share for out-of-state firms that specialize in tapping vulnerable workers? A prevailing wage law in New Hampshire can help create a context in which contractors are able to offer good jobs and invest in their workers, with benefits for contractors, workers, and construction customers – and, as we have seen, for the New Hampshire economy as a whole. A prevailing wage law can help the New Hampshire construction industry take the high road.