Policymakers are keenly interested in the effect of state-level prevailing wage legislation on the costs and labor markets of road construction and maintenance. Federal, state and local spending on highways and streets averaged $87.2 billion per month during the last expansion (July 2009 to January 2020). And as of January 2020, heavy and civil engineering construction employment peaked at over 1.1 million. This is a large industry that provides significant employment and attracts substantial federal, state and local spending each year.
State prevailing wage laws mandate that a minimum wage be paid to workers on public construction projects. This prevailing wage is set by a survey of wages paid by contractors on similar projects in the local geographical area. The legislation establishes a detailed mechanism by which state and local governments must set wages for some classes of construction workers employed on publicly funded projects. Today, 29 states have prevailing wage laws, eight of which have no lower-bound thresholds for project size and apply the mandate to all publicly financed construction projects. There are substantial policy debates over the effect and efficacy of state legislation.
This research seeks to evaluate how the presence of a state prevailing wage law affects the cost of constructing and maintaining roads and the labor share of production on road construction projects. The labor share is that proportion of road spending that flows to workers in the form of wages and benefits. To accomplish this analysis, we review the relevant research literature on these questions, highlighting the sparse nature of that work. We then present the data we use to define maintenance construction costs and labor share.
Following that, we present two basic models to test, with two specifications each, along with robustness tests for the two-way, fixed-effect model with heterogeneous timing. We also test potential bias introduced by high project cost thresholds in states with a prevailing wage law in place. Because some states exempt some projects, using the prevailing wage legislation as a dummy variable may not appropriately treat the legislation. We also separately test the six states that changed their prevailing wage laws during the sampled period.
We follow this with a description of our results, and how they may be used, along with cautions on their use. We end with a summary of our findings. We begin with a discussion of modelling issues surrounding the analysis of state prevailing wage legislation.