It has long been the mantra of “low road” construction advocates that eliminating prevailing wage statutes would save federal, state and local governments money without reducing the paychecks of construction workers.
“Wages on public projects should be set by the marketplace and not by the government” is the rallying cry heard all across the United States. By repealing prevailing wage laws, these advocaes suggest, we can put hardworking taxpayers first and reduce the burden on cash-strapped local governments. In fact, we can build 10 schools instead of only 9 with the savings that we can realize by simply repealing prevailing wage laws.
Unfortunately, credible research shows that these arguments are pure fantasy.
Three years ago, Indiana repealed its “common construction wage” law. This week, the first in-depth, non-partisan analysis of the impact of this state’s common construction wage repeal provides further evidence that the arguments in favor or prevailing wage repeal are just plain wrong.
The Midwest Economic Policy Institute’s report determined that following common wage repeal skilled craft professionals working in the Indiana construction industry are now earning less than they were before, with no meaningful cost savings for Indiana taxpayers.
The institute used U.S. Department of Labor statistics for the four quarters preceding repeal of Indiana’s common wage, and the four quarters after to determine how the policy enacted by the Republican-controlled General Assembly affected 10 market outcomes.
The study found that construction wages fell in Indiana by an average of 8.5 percent following repeal of the common construction wage, with the lowest-paid workers seeing their paychecks drop by 15 percent.
Over the same period, construction wages in Illinois, Michigan and Ohio — which retained their prevailing wage laws — grew a combined 2.8 percent, according to the report.
The researchers, Frank Manzo IV, of the policy institute, and Kevin Duncan, of Colorado State University-Pueblo, explain that Indiana’s common construction wage acted like a minimum wage for skilled construction workers, reducing income inequality by stabilizing the wage floor.
When it was removed not only did wages drop in Indiana, but the state’s construction industry had to turn to individuals with fewer skills to fill positions that previously employed Hoosiers with training and credentials beyond a high school education.
The changes in the construction industry workforce negatively impacted worker productivity, which grew at a slower rate in Indiana compared to Illinois, Michigan and Ohio.
The study found worker productivity in Indiana only increased 4.4 percent between 2014 (before repeal) and 2016. It grew 9.8 percent over the same period in the neighboring states.
According to Manzo and Duncan, that means while public projects in Indiana appear to cost 2.1 percent less per hour, contractors and taxpayers are paying workers that are 5.3 percentage-points less productive per hour.
As a result, the relative decrease in worker productivity more than offsets any benefits from Indiana’s lower wages, they said.
No public works savings
The researchers also analyzed public construction bid data in 14 northern Indiana counties, including Lake, Porter, LaPorte, Newton and Jasper, to determine how common construction wage repeal affected competition, union jobs and school construction.
Records show prior to repeal, public works projects received, on average, three bids.
Repeal proponents claimed repeal would increase competition. Though, post-repeal, governments saw little change, still receiving an average of 2.9 bids per project, according to the study.
Finally, the analysis found no significant change in the value of Indiana public school construction costs following repeal of the common construction wage.
“The early data from Indiana is unambiguous, and confirms what most peer-reviewed economists have been saying for decades,” Duncan said. “Repeal of prevailing wage laws does not save taxpayer dollars, but it shrinks middle class paychecks, hurts the economy, and causes problems ranging from lower productivity to higher turnover for the construction industry.”
State Rep. Ed Soliday, a Republican from Valparaiso, who voted against common wage repeal in 2015, said the study confirms what he thought all along: “It hasn’t saved us a penny.”
“When you have the common construction wage … you hire local people and they spend their money locally,” Soliday said. “When you go out-of-state and so forth, and just chase price instead of the overall macroeconomic contribution, you wind up weakening your own community.”