Michigan is among the states where prevailing wage laws have been repealed, albeit temporarily. From December 1994 to June 1997, Michigan’s prevailing wage law was held to be invalid by the federal courts.* During that time, school districts were free to consider bids from nonunion contractors that were predicated on the payment of market wages. In 20 cases where nonunion contractors did so, they were consistently able to make bids lower than unionized companies. On average, the potential savings from the use of market wages were in excess of 10 percent and as high as 16 percent.†
During that time, the state’s construction industry added 17,600 jobs annually, compared to annual job growth of only 4,000 in the years prior to 1994. In his analysis of the suspension of the prevailing wage law, Vedder adjusted the numbers to account for the effects of weather and the expansive mid-1990s economy, but he nonetheless concluded that prevailing wage suspension was responsible for the creation of 11,000 new construction jobs between 1994 and 1997.
In 1992 the Canadian province of British Columbia enacted the Skill Development and Fair Wage Policy, a prevailing wage law that set minimum construction wages at 90 percent of union rates. Economists Cihan Bilginsoy and Peter Philips analyzed the bids received on 54 school construction projects made before and after the policy took effect, and they found that construction costs appeared to increase by 16 percent once the policy took effect.** More recently, an analysis in California showed that when low-income housing construction was made subject to prevailing wage laws, the cost of construction was significantly higher. The authors of that study, affiliated with the University of California at Berkeley, concluded that a new state law that would extend California’s prevailing wage law to all state-subsidized housing construction would increase the cost of new construction by between 9 percent and 37 percent.
But perhaps the best indicator of what effects prevailing wage
repeal might mean for Michigan can be found in Ohio, where the state Legislature
exempted public school construction from that state’s prevailing wage law in
1997. Like Michigan’s law, Ohio’s prevailing wage law calls for the exclusive
use of collective bargaining
agreements in determining prevailing wages, and Ohio’s climate, both physically and economically, is similar to Michigan’s. Repeal of prevailing wage should have similar results for Michigan contractors, government agencies and construction workers.
Five years after the exemption was enacted, the Ohio Legislative Service Commission, at the behest of the state Legislature, reviewed data on school construction costs before and after the exemption took effect. The commission’s analysis accounted for changes in the cost of construction materials, building types and differences between rural and urban districts. The commission found that the exemption had allowed Ohio public schools to save a total of $487.9 million, 10.7 percent of construction spending. The biggest impact was on additions to existing buildings, where the exemption produced savings of 19.9 percent. The OLSC also concluded that public school construction was not a large enough portion of the overall construction industry in Ohio to have a significant effect on employment or wages in the construction industry.
* Associated Builders and Contractors, Saginaw Valley Area Chapter v. Perry, 869 F.Supp. 1239 (E.D.Mich.1994), a U.S. district court found that the Michigan Prevailing Wage Act was in conflict with the Employee Retirement Income Security Act of 1974, a law that pre-empts any state law relating to benefits. The manner in which the Michigan Department of Labor treated fringe benefits in calculating the prevailing wage and determining whether an employer paid that wage was found to relate to benefits. Because the trial court found a significant portion of the Michigan Prevailing Wage Act to be unenforceable, it ordered that the act in its entirety was unenforceable.
On appeal, the 6th U.S. Circuit Court reversed the trial court’s holding (see Associated Builders and Contractors, Saginaw Valley Area Chapter v. Perry, 115 F.3d 386 [6th Cir. 1997]). In reversing, the court held that there was nothing in ERISA itself or the legislative history surrounding ERISA’s passage to indicate congressional intent to pre-empt laws such as Michigan’s Prevailing Wage Act.
† It should be noted that during the period that prevailing wages were suspended in Michigan, builders had to account for the risk that the prevailing wage would be reinstated and that they might be liable for back pay. This likely muted the effect of prevailing wage suspension, diminishing both savings and employment gains.
** Cihan Bilginsoy and Peter Philips, “Prevailing Wage Regulations and School Construction Costs: Evidence from British Columbia,” Journal of Education Finance 24 (Winter 2000): 415–32. In spite of the cost increase, which they concede to be statistically significant, Bilginsoy and Philips conclude that prevailing wage repeal, as a cost-saving strategy, is “misguided.”