Michigan’s prevailing wage law requires that contractors on
state-supported construction projects pay union wages. Passed at a time when
union workers probably constituted a majority of Michigan’s construction work
force — they represented just 22.1 percent in 2006 — the "prevailing wage" now
forces contractors to pay wages that average 40 percent to 60 percent higher
than those found in the marketplace. The need for this wage boost is dubious. On
average, construction workers in Michigan, union and nonunion, receive a median
wage (excluding fringe benefits) well above the median wage for all Michigan
The prevailing wage law increases the cost of construction by 10
percent to 15 percent, and the additional costs are passed along to Michigan
taxpayers. Repeal of the state prevailing wage law would have saved taxpayers an
estimated $216 million in 2002, while the repeal of local prevailing wage laws
could have saved another $16 million. (These figures represent $250 million and
$19 million in 2007 dollars.) Exempting just the public school districts from
the law would have saved $109 million in 2002, or $126 million in 2007 dollars.
The main beneficiaries of prevailing wage laws are unionized
construction workers, who are relieved of the burden of competing on wages with
nonunion workers for state-supported construction. The benefits of the
prevailing wage law to the state as a whole are minimal. There is some evidence
that strong prevailing wage laws are associated with modest improvements in
per-man-hour productivity, but this increase does not offset the higher wages
that are also associated with strong prevailing wage laws. Hence, overall labor
costs in these prevailing wage states are higher than in states without
prevailing wage laws. There is conflicting evidence concerning the effect of
prevailing wage laws on worker safety, and there is no evidence that the laws
improve building quality.
Prevailing wage laws may limit jobs in the construction
industry. In 18 states without prevailing wage laws in 2004, construction
workers made up 5.3 percent of the work force, compared with only 4.2 percent
for states with strong prevailing wage laws. In Michigan, construction
employment made up only 3.7 percent of the jobs in the state’s economy.
Professor Richard Vedder has calculated that the temporary suspension of
Michigan’s prevailing wage law in the mid-1990s was responsible for the creation
of an additional 11,000 construction jobs between 1994 and 1997.
Given the empirical evidence on the effect of prevailing wage
laws, the state’s economic difficulties and the changes that have taken place in
the labor market, Michigan’s prevailing wage law should be repealed. If
policymakers choose to retain the law, it should at least be overhauled to
reflect the current state of the construction industry and eliminate unnecessary
costs to Michigan taxpayers.