Prevailing Wages, Economic Prosperity, and the Quality of Life

Prevailing wages were supposed to reduce poverty and improve living standards for workers on government-funded projects, typically construction. If such laws are "good," they should raise the quality of life and promote in-migration in the relevant state. Construction workers, their relatives, and others would want to go to the high-wage areas protected by prevailing wage legislation. If, however, the laws reduce employment, raise costs of construction, and increase burdens on the taxpayers, one would expect the laws to have a negative impact on the quality of life in a state and thus lead people on balance to leave the state.

What is the evidence for the 12 states that are "strong" prevailing wage law states, a group that includes Michigan? Chart 7 shows that from 1990 to 1996, some 2,676,800 native-born Americans migrated out of the "strong" prevailing wage law states for other states. That is the equivalent of over one thousand persons moving each day, every day for those six years. Where did these people move? Almost entirely to the states with no prevailing wage laws—those states had net in-migration of 2,541,800 persons.

It is true that simple statistical comparisons such as this one need to be interpreted cautiously. States with prevailing wage laws may have other factors that tend to repel people from moving into them, for example.20 Nonetheless, this simple statistical observation suggests that the evidence favors those who support abolition of prevailing wage laws.

Other measures of economic well being also tend to leave a negative impression of prevailing wage laws. For example, from 1988 to 1996, per capita income rose on average 49 percent in the states without any prevailing wage, compared with 42.9 percent in the states with strong prevailing wage laws, a group that includes Michigan.

Originally, advocates of prevailing wage laws argued that they alleviated poverty. What is the evidence? As Chart 8 demonstrates, the poverty rate in 1994 in the states with no prevailing wages was actually lower than in the states with strong prevailing wage laws. While not conclusive, this evidence suggests that, if anything, prevailing wages raise poverty rates, presumably by denying job opportunities to some low-income potential workers.