Imagine a law that subsidizes the well-off, discriminates against large segments of the work force, diverts funds from education and the needy, wastes tens of millions of tax dollars every year, and hurts the competitiveness of our state's businesses.
Those are precisely the effects of at least one law on the books here in Michigan: the Prevailing Wage Act of 1965. It's a classic case of special interest legislation that benefits a narrow few at the expense of the many.
The Act, which covers construction projects in Michigan that receive full or partial funding from the State, requires workers on those projects to be paid "prevailing" wages and benefits. That invariably means the rates fixed in local collective bargaining agreements--in other words, union wages and benefits. The compensation packages established by non-union contractors and their employees--who make up almost two-thirds of Michigan's construction work force--are not considered under the law in determining the "prevailing" rates.
Aside from wages and benefits, the law had been interpreted by the Blanchard administration to require contractors on state-funded projects to follow a number of other provisions found in union collective bargaining agreements, such as specific job classifications, union jurisdictional rules, apprenticeship requirements and ratios, and overtime and premium pay clauses. The Michigan Department of Labor has recently relaxed those requirements, but it's still true that if a firm wants to do work for a state-funded project, it must behave as if it were unionized even if it isn't.
As one consequence, non-union builders (known as "merit shop contractors") avoid bidding on such projects, leaving the work to unionized firms. Why should they burden themselves with the paperwork and reporting requirements of the law, skew their wage and benefit levels to suit someone else's, and subject their employees to unfamiliar and often inefficient work practices?
Workers who are competent and qualified, but simply not unionized, are effectively frozen out of work on projects from school construction to road repair. That lack of competition allows labor unions to foist their higher costs on taxpayers--an estimated $70 million in needless costs in one recent year alone.
It so happens that unionized construction workers are among the highest paid people in Michigan. That means that most other workers are paying taxes to subsidize people who make more than they do.
The prevailing wage nonsense has come home to roost with a vengeance in Kalamazoo County, where two disputes have simmered for months. One concerns a ruling of Attorney General Frank Kelley which declared that Western Michigan University would have to pay union rates for work on a new recreational facility even though it is being funded entirely by student fees. Kelley would like the Prevailing Wage Act applied to construction projects at state universities regardless of the funding source. The extra $3 million or so that "prevailing wage" would require WMU to pay is money that could otherwise go for a better facility, lower fees, or even scholarships.
Meanwhile, Kalamazoo County has had its own policy of applying state-set prevailing wage rates on its own projects that do not receive state funding. Some on the county commission now see this for the unnecessary expense that it is and have drawn fire from local unions for trying to get rid of the policy. Says commissioner Jerome Kohel, "The county has limited funds and we're faced with a situation of whether or not we continue to support a subsidy for plumbers, carpenters and electricians and put them in line ahead of the needs of other programs for the mentally ill, the developmentally disabled, environmental needs and law enforcement."
If local school districts were not bound by prevailing wage, they could spend the savings on education. If social service projects were exempted, more funds might be available for the poor. The cost of keeping criminals locked up--now more than $1 billion a year in Michigan--would be lower without prevailing wage. And certainly, any level of government that saves money because it pays market rates instead of artificial, inflated union rates, could always return the savings to the citizens and thereby stimulate job and business growth in the taxpaying private sector.
Michigan's image as a high-tax, high-cost, overly-regulated state is only reinforced by harmful laws like prevailing wage. An important lawsuit filed in January by the Saginaw Valley Area Chapter of the Associated Builders and Contractors offers some hope. The suit asks that the law be invalidated on grounds that it violates both federal statutes and the U. S. Constitution's guarantee of due process and the right to contract.
The Michigan State Legislature, however, should not wait to see if legal challenges rid us of this albatross. Economics and common sense both argue strongly against prevailing wage, especially in this time of severe budget constraints in state and local governments. By repealing the law now, legislators could begin to make amends for the grievous mistake they made in 1965.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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