Parts of this article were taken from testimony prepared by Michael LaFaive for the House Labor Committee in the Michigan House of Representatives on House Bill 4007. The House passed the bill Thursday. The Senate is expected to vote on it next week.
Prevailing wage mandates artificially lift the cost of government construction projects by forcing bidders to pay the local or, “prevailing,” wage in a particular area. Typically, that means union scale wages.
Michigan repealed its prevailing wage law in 2018. The Michigan House of Representatives voted this week to reinstate it. The Senate should vote it down. Research shows prevailing wage laws artificially raise the cost of government construction projects.
In a forthcoming study, economist Michael Hicks, co-author of this post, estimates that the cost of road construction is raised by between 8.5% and 14.3% in quality-adjusted road miles. In Michigan in 2018 that would translate to between $5,900 and $9,200 in additional costs per mile.
Who foots these extra costs? Taxpayers. Prevailing wage laws represent a transfer of wealth from many workers to a favored, and usually unionized, few. This is unfair and expensive. Prevailing wage dollars siphoned from the public sector for the benefit of a relative handful of workers could otherwise be spent on more and better roads or schools.
The Mackinac Center performed two previous, cost-specific studies on prevailing wage.
The most recent, published in 2007, found a 10% to 15% increase in construction costs associated with prevailing wage.
The Center’s 1999 study, by Ohio University economist Richard Vedder, examined a period from 1994 to 1997 when Michigan’s prevailing wage law was briefly suspended. It found the law raises construction costs by about 10%. At the time, Vedder estimated a dollar cost increase of $275 million in extra capital outlays due to the law.
The research literature on prevailing wage’s impact is mixed in terms of results, but we believe the majority of the highest-quality research shows that these laws raise construction costs for taxpayers. That said, prevailing wage laws require governments to pay higher prices for wages than they would without the law, regardless of the quality of the contractors. It should be no surprise that the law raises costs to taxpayers.
The statistical analysis by Hicks controlled for many factors that might otherwise influence the results, such as federal law and the weather. The full study will be released in the coming weeks.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.
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