For Immediate Release
MIDLAND — Repealing a state law that establishes wage rates for workers on state construction and renovation projects would save more than $400 million in annual state and local government and school costs, according to the Mackinac Center for Public Policy. Center researchers in 2002 found that the law, called a "prevailing wage" law, inflated government-funded construction costs by $421.2 million, or approximately 10 percent. The current-year state budget deficit is $285 million.
According to Director of Labor Policy Robert Hunter, the prevailing wage law is a luxury the state would be better off without. "In light of the recent $285 shortfall in revenue at the end of 2002, repeal has become even more attractive. Savings on building costs from repeal of the prevailing wage would more than make up for that shortfall, without a tax increase and without any reduction in services to Michigan citizens."
The state’s prevailing wage law effectively requires government construction projects to pay workers union-scale wages, even if the workers and their firms agree to work for a more economical wage. Most construction laborers in Michigan are not unionized. According to a Mackinac Center for Public Policy report by Dr. Richard Vedder (available at https://www.mackinac.org/2380) this practice makes labor on government construction contracts far more expensive than it would be otherwise.
Even a partial repeal of the prevailing wage law would provide significant savings. Mackinac Center scholar and Hillsdale College economist Gary Wolfram estimates that an exception for public schools would save Michigan taxpayers $150 million annually. "That would easily cover the current School Aid Fund deficit," Hunter notes.
Defenders of the prevailing wage law believe the law guarantees workers on government contracts receive good wages, and that the law promotes safety and quality of construction. But Hunter points out that when Ohio exempted public school districts from prevailing wage in 1997 a survey of district officials showed little difference in quality. "What the exemption did was to allow more competition for contracts in school construction and renovation, and to lower the cost of school construction for taxpayers, confirming earlier Mackinac Center research," Hunter said. "The administration of Gov. Jennifer Granholm is asking school districts to get by on less money, without lowering the quality of education that Michigan children receive. Exempting school districts from the prevailing wage law would make that task a lot easier," he said.
The Mackinac Center for Public Policy is a nonprofit, nonpartisan research and educational institute headquartered in Midland, Michigan. The Center operates a web site devoted to Michigan’s budget challenges at www.mackinac.org/4964.
Contact: Robert P. Hunter, Director of Labor Policy at (989) 631-0900