The Wages of "Prevailing Wages" Less Money for Education

Should Michigan public schools be forced each year to pay millions of dollars more than is necessary to build new facilities or update old ones?

Everyone agrees that wasting public resources earmarked for the education of students is a bad thing, yet that is often the result of Michigan's so-called Prevailing Wage Act of 1965. This law, which is patterned after the federal Davis-Bacon Act of 1931, forces all contractors who take on government projects to pay workers at or near artificially high union-scale wages, even if they can do the job for less.

The "privatization," or repeal, of Michigan's prevailing wage law could open up greater competition for government construction projects, driving costs down and saving over $275 million annually. Removing such an anti-competitive law from the books is especially important in school construction, where every dollar spent on government-mandated wages is a dollar not devoted to the education of Michigan children.

Ignoble Beginnings

The original "prevailing wage" law, the federal Davis-Bacon Act, emerged as a legislative response to the mass unemployment of the Great Depression and was billed as a way for America to spend its way back to prosperity. The politicians who promoted it (most notably Presidents Herbert Hoover and Franklin Roosevelt) noted that if construction workers were paid more, they could spend more and thereby boost the economy. Of course, when workers are paid more than the market can bear, the difference has to be made up through taxes. If workers are paid more via taxes taken from the paychecks of other workers, net spending does not increase, since other taxpayers then have less to spend themselves.

Faulty economic reasoning aside, there was another and more ignoble reason for the Davis-Bacon Act: Some congressmen wanted to keep more competitive black laborers out of the market for good construction jobs. Rep. Robert Bacon, in fact, introduced his bill in the House after witnessing one contractor's use of black workers to construct a government hospital in his district. Another supporter of Davis-Bacon referred to "the problem" of "cheap colored labor" on the floor of the U.S. House of Representatives.

Harms the Economy

Today both empirical and anecdotal evidence exists to show that Michigan's prevailing wage law unnecessarily boosts government spending, costs jobs, and drains resources from schools. In 1994, a federal district court judge effectively suspended the state's prevailing wage law. It was reinstated in 1997, but for nearly three years, state and local governments were free to contract for construction unencumbered by the old statute. As a result, we may now compare pre- and post-prevailing wage data.

As outlined by a 1999 Mackinac Center for Public Policy study, Michigan's Prevailing Wage Law and its Effects on Government Spending and Construction Employment, during the 30-month period when the law was inoperative:

  • More than 11,000 jobs were added to Michigan's payroll as a direct result of the law's invalidation;

  • There were 116.7 construction jobs per 1,000 total new jobs (an increase of almost 48 percent); and

  • A disproportionate number (i.e., more) of the new jobs created during this period went to blacks and other minorities.

Prevailing Wages and Public Schools

In 1997, U.S. taxpayers spent over $27 billion for new government school buildings, additions, and repairs. Last year at this time, there were more than 1,200 construction and renovation projects operating in Michigan alone. These projects carry a $2 billion price tag.

Data from several subcontractors for their work on 26 Michigan school construction projects from Wayland Middle School in Wayland to Kentwood Elementary in Kentwood to Muskegon public schools show that government-mandated wages were from 12 percent to 19.5 percent higher than wages paid voluntarily at going market levels. In Wayne County, mandated wages were as much as 52 percent higher for construction laborers such as ironworkers, bricklayers, and carpenters. This is particularly important given the 159 school construction, addition, and renovation projects valued at $540 million that are under way in Detroit.

Assuming a highly conservative estimate of 10 percent higher mandated wages over market wages on building projects, Michigan communities may be spending as much as $200 million more than is necessary per year on school construction. Money spent on high wages mandated by the state is ultimately money not spent directly on educating children, improving infrastructure, or providing needed tax relief in overburdened districts that are driving residents and businesses away and shrinking the tax base.

Michigan's "prevailing wage" law was born of bigotry, is economically destructive, and ultimately takes resources away from public schools. Allowing the competitive private sector to freely operate in the construction industry enables schools to spend more money on what they are all about: education. It is time to repeal the wasteful prevailing wage law.

Michael LaFaive is managing editor of Michigan Privatization Report.