Public Policy
  Analysis, opinion & ideas from Steve Harry

Directory

About/Contact

Prevailing wage is not good for Michigan

March 19, 2018

State senator Curtis Hertel Jr. had a guest column in the Lansing State Journal on January 14 titled "Prevailing wage is good for Michigan." I disagree.

Michigan's prevailing wage law is in the news because petition signatures have been turned in to repeal it. The Board of State Canvassers is reviewing the petitions to see if there are enough valid signatures. If there is, and if within 40 days the state legislature approves the repeal, it becomes law. Otherwise, it appears on the November ballot.

Michigan's prevailing wage law, Act 166 of 1965, covers construction workers employed on state financed or state sponsored construction projects. The law is administered by the Department of Licensing and Regulatory Affairs. LARA specifies the pay rates for all types of construction specialties - referred as construction "mechanics" - and all skill levels. The rates are based on collective bargaining agreements in the county in which the project is taking place.

Rates are updated periodically; if a contracting agent (government or school district) requests rates from LARA and the project does not start within 90 days, a new set must be obtained. Rates are available to the public at this site, where rates can be looked up by county and job. Here is an example:

Senator Hertel claims in his January 14 column that prevailing wage strengthens our infrastructure and saves tax dollars by "ensuring that projects are done right and built to last." This is because paying workers at the higher "prevailing wage" ensures that workers with the highest skills are on the job.

He is wrong about that. Paying more than the market rate does not exclusively attract highly-skilled workers. Mediocre workers like to be paid high wages, too. It is simply not true that "you get what you pay for."

Anderson Economic Group of East Lansing did a study of the effect of our prevailing wage law on education construction expenditures for the 10 year period 2003-2013. This is from page 10 of the report: "There is no clear incentive for workers that are paid at a higher wage to work harder, or more efficiently, or ensure greater quality than those paid at a lower rate, unless pay is directly linked to performance." The key to quality is strong construction codes and good project supervision:

all projects . . . are subject to the same construction codes (such as the Michigan Construction Code) . . . that set standards for quality and safety of buildings. Furthermore, customers have the ability to evaluate the quality of construction projects, both at the contracting stage where materials and methods may be specified, and after completion, when many aspects of quality are apparent.

Senator Hertel also cites a study that claims repealing the prevailing wage law would cause 10,000 skilled workers to flee Michigan for better-paying jobs in other states. The report is titled "The Cost of Repealing Michigan's Prevailing Wage Policy: Impacts on Total Construction Costs and Economic Activity" and it is from the Midwest Economic Policy Institute. According to Wikipedia, the EPI is largely funded by unions.

What that study actually claims is that repealing prevailing wage "would result in 11,320 jobs lost and a $1.70 billion reduction in economic activity across Michigan . . ." This was the conclusion of a computer program, "a dynamic market simulation using . . . economic impact analysis software." So it must be true.

We are to believe that this economic catastrophe will be the outcome of paying construction workers the market wage rather than the higher prevailing wage when they are working on state financed or state sponsored construction projects. The market wage is a wage just high enough to attract qualified workers. It is what employee and employer agree to when the government is not intruding.

One way repealing prevailing wage would hurt the economy, the study says, is that out-of-state contractors would underbid Michigan contractors, causing construction funds to leak out of the state. (page 2) However, the group behind the initiative to repeal prevailing wage is the Michigan Builders and Contractors Association. These non-union contractors are the ones to fear rather than out-of-state contractors. They are the ones who seek to underbid the union contractors, and since they don't have to travel as far to the job site, they are in a better position to do so.

Another way not requiring prevailing wage would hurt local economies is by causing "wages to deviate from those determined by local labor market conditions." In other words, local workers would get paid the lower market rate rather than the collectively-bargained rate. With lower incomes, they wouldn't spend as much and would not stimulate as much additional local economic activity. (page iii)

This is a common argument for getting more pay than one deserves - that is, more than the market rate. With that extra money, the recipient will spend more, and that will put more money into the hands of local merchants. The problem with this theory is that the extra pay comes out of someone's pockets - in the case of prevailing wage, the taxpayer. So the taxpayer has less money to spend at local businesses, nullifying the effect of the construction worker's spending.

The whole purpose of the prevailing wage law is protect union construction workers from having to compete in a free market, and LARA is the enforcer. The contractor must get from LARA the "hourly rate which includes wage and fringe benefit totals for designated construction mechanic classifications" (source: LARA) and use those rates in calculating his bid. Those rates change from time to time. If the project doesn't start within 90 days, a new set must be obtained and used even if the bid has already been submitted. Prevailing wage rates vary by county, complicating the process further for contractors bidding on multiple projects. "An accurate record showing the name, occupation, and the wages and benefits paid to each construction mechanic must be kept by the employer, and made available to the Department or the Contracting Agent for inspection, upon request." (source: LARA) All of this adds to the contractor's administrative costs, which get passed on to the taxpayers along with the amount by which the prevailing wage exceeds the market rate for his workers.

Taxpayers also pay the salaries and other expenses of the LARA employees who are involved in administering the prevailing wage law. LARA must collect wage rates for thousands of wage classifications that vary by location, provide them to contractors, and investigate complaints from workers who claim o have been paid less than the prevailing wage.

The Anderson Economic Group's 2013 report estimated that Michigan's prevailing wage law has increased costs for education construction alone by an average of $127 million a year for the last 10 years.

The website for the effort to repeal prevailing wage is timeforrepeal.com and the website opposing repeal is michiganprevails.com.

How Much Will the Repeal of Prevailing Wage Save Taxpayers in Michigan? Jarret Skorup, Capital Confidential, 9/18/2018

Send comments, questions, and tips to stevenrharry@gmail.com, or call or text me at 517-505-2696. If you'd like to be notified by email when I post a new story, let me know.

Previous stories

*********************************************************************************

Comments from readers:

Are you familiar with the project to construct the new Medical Care facility in Eaton County about 10 years ago?

A year after the project, the new building had a serious mold problem and it cost around a million dollars to fix.  Who paid for this?  The medical care facility (tax payers).  The contractors pointed fingers at each other (designer, landscaper, window company, etc.) and in the end none of the contractors took responsibility for fixing it.  By the way - this was a prevailing wage project.  That is when I learned that prevailing wage doesn't guarantee quality or that someone will stand behind their work.  It only guarantees that you will pay more.

************************************************

You are absolutely right we need poor, untrained and inexperienced people building our infrastructure. We don't want skilled trades workers, we want the cheapest people we can get. I tell you what, why don't we just use prisoners, I am sure we can come up with a bunch of new laws to put more people in prison and then we can use them as free labor. Just like China.

Contractors are doing fine with prevailing wage in place. If you want to save money have them cut profit sharing for the big ceos. That’s where the waste is.

Contractors are doing fine with prevailing wage in place. If you want to save money have them cut profit sharing for the big ceos. That’s where the waste is.