MIDLAND-Before Michigan lawmakers delay tax cuts or cut services in order to
make up a $382 million budget shortfall next year, they should repeal a law that
unnecessarily costs the state an estimated $110 million every year: Michigan's
prevailing wage law. The state could thereby wipe out nearly a third of its
problem without cutting programs or increasing taxes, according to Robert P.
Hunter, director of labor policy for the Mackinac Center for Public Policy in
"Postponing already programmed business and income tax cuts would send exactly
the wrong message to job providers just when it looks like the general economy
may start to pick up," said Hunter. "Instead, we should allow state-funded
construction projects to be awarded the same way other contracts are-on the
basis of who can deliver the best quality for the best price."
Instead, Michigan's prevailing wage law prohibits awarding contracts to the
lowest bidder unless the contractor pays "prevailing wages," which are based on
union pay scales. These wage rates are usually well above the market rate, and
wind up increasing the cost of government contracting and reducing the number of
new jobs created in the construction industry.
Mackinac Center policy analysts examined state budgets and House Fiscal Agency
reports, and estimated that approximately $1.1 billion-worth of state
construction would be affected by a repeal of Michigan's prevailing wage law.
This is a conservative estimate, since it does not include local government or
A 1999 Mackinac Center study estimated that if the state prevailing wage mandate
were lifted, the savings on non-federal construction projects would be
approximately 10 percent. Applying this calculation to the $1.1 billion in costs
affected by the prevailing wage law, Center analysts concluded Michigan could
save somewhere in the neighborhood of $110 million each year.
"Every taxpayer in the state pays excessive taxes for this law," Hunter said.
"While we are certainly not opposed to high but competitive wages in the
construction industry, the state has an obligation to its taxpayers to get the
best deal it can on any goods or services it buys, and that includes
Hunter says that nonunion construction firms are roughly equal to unionized
firms in safety, speed and quality, and they have an advantage in labor costs.
By arbitrarily setting wages at the union rate, the state takes away this
advantage, and at the same time denies itself the ability to get the best deal
whenever it solicits bids for construction work. Naturally, these costs get
passed along to the taxpayers. By increasing the cost of construction labor,
Michigan's prevailing wage law diminishes the number and quality of new schools
and other buildings that can be built, the number of jobs in the construction
industry, and hinders nonunion employers competing for government contracts.
"Especially in the midst of a budget crisis, there is every good reason to
discontinue a policy which hurts nonunion workers and taxpayers," Hunter said.