Changing the state’s calculation of the prevailing wage so that it reflects actual market conditions is not without complications, but if it is done correctly, state and local government could enjoy most of the cost savings that they would realize after repealing the prevailing wage law.
Such a change would require a careful redrafting of the law. The prevailing wage statute currently calls for the exclusive use of collectively bargained (that is, union) rates in determining prevailing wages. The statute should instead call for the state’s department of labor to calculate the average wages of all qualified workers, union and nonunion, for each class of construction labor.
Most of the costs of Michigan’s prevailing wage law come about because of the statutory tie to union wages, which might have covered half of Michigan’s construction work force at the time the law was passed, but cover less than a quarter of that same work force today. Union wages are on average 40 percent to 60 percent higher than those paid to nonunion construction workers, who make up more than three-quarters of Michigan’s construction industry. If the tie to union rates were dissolved, contractors would still be prohibited by law from paying below-average wages, but taxpayers would no longer be forced to pay wages well above those typical for the industry. The cost of labor on government construction would then be reasonably close to the cost of construction labor for private-sector customers.
At the same time, the state should consider basing the work classifications for prevailing wages on a neutral source, such as the U.S. Department of Labor’s Standard Occupational Classification or the North American Industry Classification System. Under the current practices of the state’s Wage and Hour Division, work classifications can vary from county to county or shift as new collective bargaining agreements take effect. The use of a neutral set of work classifications would allow union and nonunion contractors to refer to one consistent set of rules that apply across the state.
Lawmakers should also consider reducing the number of geographic divisions used for setting prevailing wages, or even call for the creation of a single, statewide rate schedule. In an age when markets for goods and services are increasingly global, it would seem more than reasonable to think of the Detroit area, for example, as a single construction marketplace with fairly consistent wages, as opposed to the current practice of issuing separate wage determinations for Oakland, Macomb, Washtenaw, Livingston, Monroe and Wayne counties. A single statewide rate schedule would be simplest and would provide more than adequate protection to the state’s construction labor force. There is no compelling reason the state of Michigan should protect construction workers in Flint against competitors from Traverse City, especially if both are paid, at a minimum, average wages for the state.
If the Legislature were to adopt these recommended changes to prevailing wages, it would need to give precise directions to state agencies for calculating rates — specifically, how wage data are to be collected, and how the data are to be used to set a final rate. Lawmakers should bear in mind that when prevailing wages are miscalculated, whether due to fraud, mathematical error or the requirements of an outdated prevailing wage statute, government and taxpayers bear the greater risk. Construction workers are not obligated to accept work at the rates set by the state. If the rate calculated by the state understates the correct wage, workers should still be able to find work at the true prevailing wage, which would be a higher rate of pay. But if the rate determined by the state is erroneously high, contractors are obligated to pay the higher wage unless the error is found and corrected. This cost will most likely be passed on to government agencies and, ultimately, taxpayers.
Lawmakers should resist the temptation simply to defer to federal Davis-Bacon determinations. While in theory the rate determinations made by the U.S. Department of Labor should reflect the overall labor market, the research noted earlier into DOL’s determinations has uncovered evidence that wage data have been manipulated in favor of union rates. In a state like Michigan, with a history of strong unions, the opportunities and pressures for such manipulation would be particularly strong. Michigan would be better advised to set its own standards with strict procedures in place to ensure fair determinations based on accurate data.
There is one other alternative that the state could consider, which is to adopt the Bureau of Labor Statistics determinations. BLS annually calculates statewide median wages for hundreds of occupations, including more than 30 separate categories of construction work. The BLS’ "State Occupational Employment and Wage Estimates" covers the entire marketplace, union and nonunion, and provides a sound basis for prevailing wage determinations if state legislators prefer to delegate that task to an agency outside of state government.