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Prevailing-wage law: Noble goal, costly projects

Aaron Morris, fiscal policy analyst for the Bluegrass Institute was invited by Rep. Joe Fischer to provide the following testimony to the Kentucky House Labor and Industry Committee on March 7, 2006:

Good morning Mr. Chairman and committee members.

Thank you for the opportunity to come here today and present you with information regarding prevailing wages in Kentucky. My name is Aaron Morris. I am a fiscal policy analyst for the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank.

Prevailing-wage laws seek to assure that government-run construction projects pay wages comparable to those in the surrounding area. That is a noble goal. In practice, however, prevailing-wage laws artificially raise the actual cost of constructing public buildings, including schools and university facilities. In short, prevailing wages impose significant costs on Kentucky taxpayers.

The new University of Kentucky hospital is a clear-cut example. Under Kentucky’s prevailing wage, the project would cost an estimated $450 million. Eliminating this policy would drop the cost to about $430 million, a savings of $20 million, or nearly 5 percent.

Consider also the new University of Louisville health-research facility. Eliminating prevailing wage on this $70-million project would save at least $3 million, or 4 percent.

Workers employed on these kinds of projects should receive a competitive wage. They are not entitled to a wage artificially inflated by government mandates.

Prevailing-wage laws often mean one of two things for taxpayers: fewer projects or higher taxes. Neither option should be a very attractive reelection campaign slogan.

Prevailing-wage policies artificially raise wages for certain workers. Here are a few examples:

The lowest prevailing wage in Louisville is for marble and tile finishers at $14.24 an hour. According to the U.S. Bureau of Labor Statistics (BLS), this level of pay ranks higher than median wages for both firefighters and emergency medical technicians.

One of the highest prevailing-wage rates in Louisville is $31.29 for boilermakers. These wages rank much higher on the compensation ladder than the BLS rates for private-sector mechanical, electrical, civil and industrial engineers. Prevailing wages also differ from county to county, and often do not reflect market wages, even in the commonwealth’s poorest counties.

Plumbers in Kentucky earn a market-wage rate of $18.15, according to the BLS. Yet the wage survey for Owsley County demands that plumbers on public projects receive $23.75, more than $5 more per hour than the average plumber in Kentucky. In Oldham County, the prevailing wage for plumbers is $8 over the market wage for a Kentucky plumber.

These distortions are not limited to plumbers. Boilermakers in Kentucky typically command a wage of $21.69, according to the BLS, but Kentucky mandates a wage of $24.65 in the Owsley County region and $31.29 in Oldham County.

Kentucky’s Legislative Research Commission (LRC) noted in a 2001 study: "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.

"While union workers account for approximately 21% of non-residential construction workers, 81% of the workers for which wages were submitted … were union members." The report also states: "Sixty-four percent of the determinations made resulted in the prevailing wage being set equal to the union wage."

Prevailing-wage laws, therefore, more often reflect the wages of unionized workers, not those of the larger market for construction services. Competition in the construction trades yields significant benefits to the purchasers of construction services, the most important of which may be a better price. That’s why they are called competitive bids.

The end result of a government-run construction project should be the same for a private-sector project: the best project for the dollars available. Again, Mr. Chairman, let me thank you for the opportunity to speak. I welcome the committee’s questions.

Readers who would like more information can read our previous publications on prevailing wages here:

What is a prevailing wage?

Eliminating ‘prevailing wage’ reduces the cost of college

Repeal prevailing wage policies

Kentucky’s prevailing wage yields union rates

How to build new schools without cutting programs or raising taxes

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