Executive Summary

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 workers.

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.