In 1999, the Mackinac Center for Public Policy examined the cost of state construction projects in Michigan between 1994 and 1997, a period when Michigan’s prevailing wage law for state-supported construction projects was not enforced due to a federal court ruling. The result was Dr. Richard Vedder’s 1999 Mackinac Center Report "Michigan’s Prevailing Wage Law and Its Effects on Government Spending and Construction Employment."
This report firmly established that Michigan’s mandated wages were "prevailing" in name only; they did not reflect market prices. In fact, Dr. Vedder found that these wages substantially increased the cost of state construction projects.
Michigan’s prevailing wage law and administrative practice may be even more counterproductive now than they were in 1999. Since 2004, the state of Michigan has allowed third parties, not just individual workers, to challenge the practices of nonunion contractors engaged in state-financed construction.* This provision leaves nonunion contractors subject to complaints from union officials, making state construction projects more costly for the contractor and ultimately the taxpayer. Even if a contractor is eventually cleared in a prevailing wage investigation, the pending charge could easily hurt the contractor’s ability to win contracts for other state jobs. Administrative rules like these point to the continuing problems associated with state government’s mandating a wage, rather than allowing the market to determine the value of labor on a particular job.
The following report, authored by Paul Kersey, is the natural follow-on to Dr. Vedder’s earlier work. Unfortunately, after seven years, the conclusion remains the same: Michigan’s prevailing wage law adds unnecessary costs to construction projects at taxpayers’ expense. Kersey makes several recommendations to help improve this situation.
It is our hope that if the Mackinac Center examines the issue of state-mandated prevailing wages years from now, it will be in the service of history, not policy reform. Should this be the case, Paul Kersey’s contribution will certainly be one of the reasons why.
Thomas W. Washburne
Director of Labor Policy, Mackinac Center for Public Policy
* See, for instance, "Fact Sheet #2: Changes to Michigan’s Prevailing Wage," State of Michigan Department of Labor and Economic Growth/Wage and Hour Division, March 2007, 1, http://www.michigan.gov/documents/cis/FS_2_Prevailing_Wage_191045_7.pdf, accessed June 22, 2007.