Statement: No Time to Destroy Middle-Class Construction Jobs and Hurt Local Economies by Weakening Prevailing Wage Law
With the state legislature considering voting this week on proposals to weaken the state’s prevailing wage law, Keystone Research Center Executive Director and economist, Dr. Stephen Herzenberg issued the following statement. The prevailing wage law requires that wages and benefits on state-funded construction projects not undercut regional standards in each trade on construction projects similar to state projects.
“Weakening prevailing wage laws is a failed policy that Pennsylvania already tried in the late 1990s and that didn’t work.
“When it comes to construction work, you get what you pay for: prevailing wage laws help ensure the use of more skilled and experienced workers on state projects. That’s why study after study that examines the cost of actual projects finds that prevailing wage laws do not increase costs—as Pennsylvania learned first-hand during the Ridge Administration.
“At a time when Pennsylvania needs every middle-class job it can find, it makes no sense to weaken a law that ensures that state projects hire local workers that spend their earnings at local businesses—rather than using low-wage workers from out of state. Rural workers and economies will be hurt the most by weakening prevailing wage laws.”
Dr. Herzenberg accompanied his statement with a quote from construction contractor James P. Gaffney, Vice President of Goshen Mechanical, Inc., based in Malvern, Pennsylvania. The company performs projects in rural, suburban, and urban areas of Pennsylvania. Mr. Gaffney said that “Prevailing rates ensure that construction work on Pennsylvania schools and other state projects is performed by local, skilled, and educated workers. The law has also promoted small businesses in Pennsylvania for generations.”
Important Facts about the Prevailing Wage Laws:
- The most credible research on the impact of prevailing wage laws, published in peer refereed academic economic journals, finds that these laws have no impact on project costs. This research relies on data on actual project costs and examines costs in states with and without prevailing wage laws, taking into account other factors that impact costs.
- This careful academic research also shows that prevailing wage laws increase investment in worker training and improve safety, as well as raising wages and benefits.
- What matters most to the cost of public construction is when in the construction industry cycle projects takes place. The state can save 20% or more on project costs if it times more projects to take place when industry demand is down and contractors bid lower. With borrowing costs still very low and the market still somewhat depressed, now would be an ideal time for the state to ramp up a “Buy Low Pennsylvania Infrastructure and Construction Initiative.”
- Claims that prevailing wage laws drive up the cost of public projects by 20% or more are not based on actual experience. These claims are based on hypothetical calculations which simply assume that the state can pay a lot less for wages and benefits without impacting worker skill and productivity. In essence, these studies assume their conclusion, a good way to guarantee the result proponents of repeal want but not actual evidence or a basis for good public policy.
- Back in the late 1990s, Pennsylvania actually ran a real-world experiment with lower prevailing wage levels. As in other states, lower prevailing wages did not translate into lower construction costs.[i] If anything, construction bids appeared to go up more in rural areas where prevailing wages were lowered more.
For more details and complete references and sources see, The Benefits of State Prevailing Wage Laws: Better Jobs and More Productive Competition in the Construction Industry
For recent blogs that discuss in more detail the flaws of studies claiming big savings from eliminating prevailing wage:
[i] Howard Wial, Do Lower Prevailing Wages Reduce Public Construction Costs? (Harrisburg: Keystone Research Center, 1999); online at http://keystoneresearch.org/publications/research/do-lower-prevailing-wages-reduce-public-construction-costs.