As the state of Michigan confronts economic difficulties of a severity rarely seen in its history, the state’s political leaders should not hesitate to reconsider policies instituted decades earlier under different economic conditions. Among the policies that should be thoroughly re-examined is that of requiring the payment of union wages and benefits to construction workers on projects funded or supported by state government.

The state’s prevailing wage law was enacted in 1965, back when Michigan’s automobile industry was in its glory days and a larger portion of the state’s work force, including its construction work force, was unionized. At the time, it could be plausibly argued that wages and terms of employment set by collective bargaining agreements "prevailed" in the construction labor marketplace, and that the state was prosperous enough that taxpayers could afford any additional cost that might result from the law’s requirements. Thus, the prevailing wage law could have been seen as a modest regulation, designed to ensure that workers on state contracts received wages that were typical for their occupation and involved only modest additional costs for the state’s taxpayers.*

Today, labor unions represent a much smaller — and still dwindling — portion of the work force, including that in the construction industry in Michigan. In 2006, only 22.1 percent of construction workers were covered by collective bargaining agreements.[1] The wages and terms of employment that prevail in Michigan today are more likely to be those found at nonunion "merit shop" contractors, set in an open market by the mutual agreement of workers and employers without the involvement of union officials. As a consequence, Michigan’s prevailing wage law now forces taxpayers to pay for construction wages that in many cases may be more than 50 percent higher than are typical in the industry.

Meanwhile, the state government’s budget has become especially difficult to balance. Many policymakers are understandably reluctant to raise taxes; in fact, the state Legislature will replace the state’s "single business tax" at the beginning of 2008 in hopes of attracting new businesses and giving existing Michigan businesses a reasonable chance to be profitable. In these economic conditions, the prevailing wage law looks less like a reasonable rule to protect construction workers on state projects from "cutthroat competition," and more like a subsidy that the state and its taxpayers can no longer afford.

* Arguably, the total economic effect of the prevailing wage law might actually have been higher when the law was first implemented because the law effectively helps shield high-cost producers from competition. Those higher-cost producers were a larger proportion of the construction marketplace in 1965.