A Way to Ease the Pain of Budget Cuts

Everybody knew before Gov. Jennifer Granholm introduced her fiscal 2004 budget last month that balancing the books wouldn’t be pretty. Simultaneously confronting a $1.7 billion deficit and an electorate with little interest in tax increases, the administration has so far worked to balance the budget through spending reductions.

A great way to ease the pain of budget cuts would be to repeal Michigan’s Prevailing Wage Law of 1965 — which would translate into savings of more than $400 million dollars every year.

The prevailing-wage law applies whenever state funds are used on the construction, renovation or repair of buildings or roads. Under this law, workers must receive the wage typical of those doing similar work in the community. In Michigan this is uniformly taken to mean the wages set in local collective bargaining (union) agreements.

Most construction in the state is done by non-union companies, which pay their workers prevailing market wages. But because of the prevailing wage law, all workers must receive union-scale wages on any project that is even partially funded by state government. While that may sound like a good deal for construction workers, there’s a catch: By ratcheting up wages, prevailing wage laws make construction work harder to find.

Looking at data from a 30-month period in the mid-1990s, in which Michigan’s prevailing wage law was suspended by a federal court, Prof. Richard Vedder of Ohio University found that job creation in construction jumped sharply, and that the temporary prevailing wage suspension added 11,000 jobs to the state’s economy. It also saved Michigan taxpayers millions of dollars.

As a result of the prevailing wage law Michigan taxpayers must pay what amounts to a premium of at least 10 percent on state or federally-funded construction, according to Prof. Vedder.

Hillsdale College economist Gary Wolfram estimates that prevailing-wage laws cost Michigan’s K-12 public schools at least an extra $150 million annually. According to the U.S. Census Bureau, construction for Michigan colleges and universities amounted to over $352 million in 1997 (the last year for which such figures are available), suggesting that the prevailing wage added at least $35 million to the cost of higher education.

Repeal of the prevailing-wage law is not likely to effect construction quality. When Ohio carved out an exemption for public schools from that state’s prevailing wage law in 1997, only 2 percent of districts reported any decrease in quality in a state-sponsored survey. Yet, the schools have been saving tens of millions of dollars every year.

In Wayne County, prevailing-wage rates vary from a modest $15.26 an hour for a landscape laborer, to a respectable $32.16 for a painter, to a comfortable $38.96 for a bricklayer. Under Michigan’s prevailing wage law a bricklayer will earn nearly $80,000 annually and more with overtime. By comparison, the median Michigan wage was $14.03 an hour in 2001.

Tight budgets necessarily require a healthy re-setting of priorities. Can Michigan afford to force its schools and governments (both state and local) to pay more than necessary in the face of deficits? Should the state be in the business of fixing wages to benefit certain special interests at the expense of everyone else?

By what standard of social justice does the state inflate the wages of workers who would most likely be earning above average wages without government intervention? Bricklaying is hard work, but which is more important — that some bricklayers make $38.96 an hour, or that school districts have more money to buy textbooks and equipment, and hire more teachers? Which is more valuable to the future of Michigan: Wages of $32.16 an hour for certain painters, or affordable tuition at state colleges?

Governor Granholm’s courage in focusing on spending cuts to balance the budget is commendable. Working to repeal the Prevailing Wage Act of 1965 would take that courage to a new level. It would prove that she is willing to take on powerful vested interests in organized labor when those interests conflict with those of the general public.

(Paul Kersey is Labor Research Associate at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. More information is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.)