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Prevailing Wage10/01/2003
What the Minnesota Department of Labor and Industry Discovered About Prevailing Wage
by
Larry Casey
Industrial Relations Center
Carlson School of Management
University of Minnesota
In the summer of 1998 Minnesota's Department of Labor & Industry (DOLI) set out to discover the economic impact of state prevailing wage laws which exist in other states. It is not certain why DOLI decided to over view other states. It would appear that the state agency was trying to make a case either for or against Minnesota's current prevailing wage statute. Rather than set out to conduct and underwrite a new study that is usually developed by economists at research universities, DOLI chose to analyze those studies, which already exist.
An employee of the state and former graduate student at the U of M's Industrial Relations Center, Greg Sands was in charge of the report. The final product: OVERVIEW OF RECENT STUDIES ON PREVAILING WAGE was released in the fall of 1998. The report traces the origins of prevailing wage law going back to Kansas in 1891 and detailing the logic of federal Davis-Bacon Act of 1931. The report also outlines the beginnings of Minnesota's prevailing wage law that was passed in 1973. Whether a law is passed, repealed or modified there is a constant tension between union and non-union interests when the subject of prevailing wage is approached.
What Greg Sands discovered, is that there is tension all right, but the tension should be about consumers and taxpayers and the value they receive for the tax dollars spent. This should not be thought of as a union verses non-union issue. Greg discovered what numerous university reports have already discovered-that prevailing wage laws are good for the economy, taxpayers and the public in general. Greg analyzed seven reports from universities in Massachusetts, Wisconsin, Utah, Indiana, and Minnesota. Of those seven reports only one favored repeal of current prevailing wage laws.
At the University of Wisconsin, professors Paula Voos and Dale Belman found that in nine states where the prevailing wage law was removed "state budgets and taxpayers did not benefit." They listed the consequences of repeal:
Lower wage rates for all construction workers
Reduced tax revenues available to state governments
Lower quality construction and cost overruns
A severely weakened system of construction apprenticeship training
Increased occupational injuries and costs for workers' compensation
Lowered minority participation in construction, job training and increased minority unemployment in the skilled trades
The Economic Department at the University of Utah conducted a very detailed study on the impact of repeal in nine states. The eighty-two paged report found that repeal did not yield the savings that were claimed by foes of prevailing wage laws. Dr. Peter Phillips was the primary researcher at Utah. He and his associates had similar findings when compared with Wisconsin. Phillips also measured a variety of social costs. His study revealed increased welfare costs because the union sector workers who ordinarily receive health benefits through employer provided funds lost these benefits because of increased construction unemployment. It was also discovered that the non-union firms that were awarded the jobs when prevailing wage laws were repealed did not provide benefits to most of its employees. In short, the strain of providing health care for both union and non-union workers and dependents was shifted to the taxpayers. Utah also discovered that the "size of cost overruns tripled in the ten-year period following repeal of the statutes."
The lone report that does not favor prevailing wages was done by Professor A.J. Thiebolt in writing for the Journal of Labor Research in the spring of 1996. Thiebolt attacks the Utah study and states that it is "flawed in many ways." He continues to stress that the Utah study "is wrong in theory." However, while posturing for his theory, Professor Thiebolt never acknowledges the productivity differences between union and non-union workers. It is fairly common knowledge that union workers, because of their certified apprenticeship programs and training are between 48% and 54% more productive then their nonunion counterparts. There have been studies done by Dr. Steven Allen at the University of North Carolina which support this productivity differential. If you only compare wages and benefits, on paper union workers would easily cost more. The customer would appear to be better served by using the cheaper worker. On the other hand, hiring a workforce that is significantly more productive makes sense. When you factor in the improved safety record and lower workers' compensation rate it is just good business to hire and use organized labor and contractors.
In the summer of 1992 researcher Mike Walter at the University of Minnesota explained that without a state prevailing wage law in Minnesota employer sponsored costs would shift to taxpayers. Walter notes that union construction workers earn health care, pension, vacation and training benefits through joint labor-management funds. In other words, when a union worker's family member needs health care that child does not need to go to a publicly funded clinic. Likewise retirees can draw a decent pension and coupled with Social Security benefits can look forward to a happy carefree retirement.
The Walter research of 1992 supports what Belman and Voos discovered in 1996. Their more broad based study notes that "states without prevailing wage laws experience escalated demands for public services [including medical care]". Belman and Voos also note that for every 408 employees without health care the state of California spends $1 million on workers and their dependents when health care is needed.
The report that Greg Sands wrote was from a variety of studies from all corners of the country. They were reports conducted through 1996. The evidence from the studies supports that not only in prevailing wage legislation doing what it was supposed to do but without the law the consequences to the public in general are very negative. The current law in Minnesota promotes quality construction, value for taxpayers, livable wages and a privately financed training system and fringe benefit system.
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