Prevailing Wage Law Hurts Workers, Economy, According to New Analysis

MIDLAND— "Prevailing wage" laws, which mandate union-scale wages for all work involving state money, not only fail to help workers, but actually hurt employment, slow economic growth, and even foster racial discrimination, according to a new study from the Mackinac Center for Public Policy.

For these and other reasons, Michigan should repeal the state's prevailing wage law, say study author Richard Vedder, Distinguished Professor of Economics at Ohio University, and Robert P. Hunter, director of labor policy at the Center.

"An examination of the evidence on employment, construction costs, and the broader economic effects—including racial discrimination—all suggest that Michigan's prevailing wage law stifles economic growth, lowers employment, causes workers to leave the state, and unnecessarily burdens taxpayers," says Hunter, a former member of the National Labor Relations Board under President Ronald Reagan.

Vedder notes that Michigan's law was rendered ineffective by a federal ruling in December 1994 and then reinstated in June 1997, "making it possible to analyze the effects on the economy of both the law and its temporary repeal." By comparing the performance of Michigan's economy during the 30 months when Michigan's prevailing wage law was inoperative with its performance in the 30 months previous to this period, Vedder found that

• Job growth in Michigan's construction industry jumped from 4,000 jobs per year to 17,600 per year when the prevailing wage law was not in effect; adjusting for seasonal factors, employment in construction expanded more than 42 percent during the period without the prevailing wage law;

  

• The prevailing wage law adds about 10 percent to the cost of government construction projects, and, combined with the increase in costs for non-construction-related government jobs, adds at least $275 million annually to the cost of governmental capital outlays;

  

• Repealing Michigan's prevailing wage law would be like giving each Michigan taxpayer a rebate equivalent to roughly five percent of his state income tax payments.

In addition, Vedder found that black workers' representation in the Michigan construction industry is well below the national norm and cites a wealth of theoretical and empirical evidence indicating that prevailing wage laws "make it easier and less financially punishing for employers to indulge in their particular bigotry."

For example, he says, "Consider a state without a prevailing wage statute, where Contractor A wants to hire a plumber. He offers the generally agreed-upon, market hourly wage of $10 per hour and receives one job applicant, an African-American. Even if Contractor A is racially prejudiced, he almost certainly will hire the black applicant because he needs a plumber. To get more applicants in hopes of attracting a white worker, he would have to offer to pay more, thus lowering his profits.

"Now suppose a prevailing wage law sets plumber wages at an above-market rate of, say, $15 per hour. Contractor A gets three applicants, two white and one black. He can now hire a white worker without financial penalty." This, Vedder believes, is why Census Bureau figures from 1990 show Michigan blacks nearly 16 percentage points behind blacks in the nation as a whole when it comes to representation in the construction industry.

"The original prevailing wage laws were conceived two-thirds of a century ago, to meet problems that do not exist today," Vedder says. "The predominance of evidence suggests that the Michigan legislature would be wise to repeal the Prevailing Wage Act of 1965."

The complete 21-page study, Michigan's Prevailing Wage Law and Its Effects on Government Spending and Construction Employment, is available at no charge via the Internet at www.mackinac.org, or for $5 by calling (989) 631-0900.