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Kentucky’s prevailing wage yields union rates

By Aaron Morris

Like most legislation, Kentucky’s prevailing-wage laws have the right idea at heart. Also like most legislation, the practical application of it misses its mark by a mile.

The intent of Kentucky’s prevailing-wage laws is to make sure contractors on state projects do not take advantage of workers by paying below-market wages to win state contracts. While this intention is noble, its unintended consequences wreak havoc on the actual cost of constructing public buildings.

Even the Legislative Research Commission (LRC) noted in a 2001 study which states:

Prevailing wage determinations are not designed in a manner that would likely yield prevailing wages that are representative of local wages. ... The determination process used by the Kentucky Labor Cabinet is more likely to yield prevailing wages that are representative of union wages rather than wages for all construction workers in the industry.

According to the LRC’s own analysis, wages paid on public projects like schools, university projects and state buildings across Kentucky are much higher than comparable private projects. These taxpayer-funded projects are made substantially more expensive by current Kentucky law requiring that workers renovating or building new state buildings be paid prevailing wages.

The U.S. Bureau of Labor Statistics (BLS) tracks the median wage rate for hundreds of occupations in localities across the country. Its determination consistently documents wage rates well below Kentucky’s stated prevailing wage determinations – the result of a faulty reporting system that tilts the playing field in favor of organized labor.

In 81 of Kentucky’s 120 counties the prevailing wage is determined by surveying contractors and union officials. Union officials have a strong incentive to report the highest possible wage for their workers. Private contractors, on the other hand, have businesses to run and contracts to fulfill, and have much less of an incentive to return the surveys.

As a result, the LRC concludes:

The determination process … is more likely to yield prevailing wages that are representative of union wages rather than wages for all construction workers in the locality. While union workers account for approximately 21% of non-residential construction workers, 81% of the workers for which wages were submitted … were union members. And later the report states...

Sixty-four percent of the determinations made resulted in the prevailing wage being set equal to the union wage.

Not only are Kentucky’s prevailing-wage determinations much higher than the real market-wage rate, they can vary widely from one area to another.

For example, plumbers in Kentucky earn a market-wage rate of $18.15 according to the BLS. Yet Kentucky has determined its base prevailing wage to be $23.75 in Owsley County, which, according to the U.S. Census Bureau, has the lowest median income in Kentucky at $17,344. At the same time, the prevailing wage for plumbers is calculated to be $26.31 in Oldham County, which enjoys the highest median income at $65,834.

Boilermakers in Kentucky command a median wage of $21.69 according to the BLS, but Kentucky’s flawed determination requires they be paid $24.65 in the Owsley County region and $31.29 in Oldham County.

Kentucky’s prevailing-wage determinations should be revised to more accurately reflect actual market wages and return a well-intentioned law back to its original purpose.

—Aaron Morris is fiscal policy analyst for the Bluegrass Institute for Public Policy Solutions.

Sources: Bureau of Labor Statistics, November 2004 State Occupational Employment and Wage Estimates, Commissioner’s current revisions: Kentucky prevailing wage determination, localities 25 and 26

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