Prevailing Wage Costs Taxpayers $250 Million Annually, Reduces Construction Jobs, Primarily Benefits High-Wage Construction Workers
“A trifecta of bad public policy,” says Mackinac Center senior labor analyst
Monday, Aug. 27, 2007
Contact: Paul Kersey
Senior Labor Policy Analyst
MIDLAND — A study released today by the Mackinac Center for Public Policy estimates that Michigan’s prevailing wage law, which requires union wages to be paid on state construction projects, costs state taxpayers about $250 million per year. The main effect of this extra cost is to boost the wages of construction workers, most of whom earn compensation well above the average for Michigan residents, according to the study. Michigan’s prevailing wage law also appears to decrease the number of construction jobs in the state.
"This amounts to a trifecta of bad public policy," said Paul Kersey, senior labor policy analyst at the Mackinac Center. "Michigan’s prevailing wage law effectively boosts construction wages by 40 to 60 percent whenever the state pays for or helps finance construction. Construction workers’ median wages are now 28 percent higher than those for Michigan workers as a whole. This boost for mostly above-average-wage workers increases the cost of state-financed construction, including many schools and roads, by 10 to 15 percent. It’s a questionable use of taxpayer money."
Because state guarantees on school district construction bonds trigger prevailing wage requirements, the prevailing wage law also applies to most public school construction. Exempting public school districts alone from the law’s requirements would likely save state taxpayers around $125 million annually.
Michigan’s prevailing wage law assumes that union wages prevail in the marketplace, even though unions represent less than a quarter of the construction workforce in the state, Kersey noted. "Consequently, what Michigan law calls a ‘prevailing’ wage is actually an above-market wage paid to a shrinking minority of construction workers," he wrote. Kersey called for repeal of the prevailing wage law, but his study also provides alternative measures that sever the link between "prevailing wage" mandates and union rates, allowing contractors to pay their workers wages that are closer to those found in the market.
The study is available on the Web at www.mackinac.org/8907.