Missouri’s prevailing wage laws

The case for Senate Bill 30 and for repeal

Testimony of Bruce Hillis on Senate Bill 30 before the Senate Small Business, Insurance and Industry Committee, February 12, 2013.

During this hearing you are going to hear wild claims concerning the social and economic benefits of Prevailing Wage Laws for Missouri from those opposing Senate Bill 30.

They will talk about such emotionally stirring issues as less experienced workers, higher injury rates, lower wages, lower health coverage, and the effects of “harmful competition” without a prevailing wage law. They will speak glowingly about increased earnings and taxes, higher-quality work, and the economic benefit accruing from the spending cycle which results from the higher prevailing wage rates.

These claims won’t be backed by scholarly studies, except perhaps those commissioned by the supporters of prevailing wage. Most of their claims will be supported by only anecdotal evidence or relate to a specific micro economic effect and not, to any extent, apply to the Missouri-wide macro effect.

Since we have yet to hear what claims will be made today by the proponents of prevailing wage, I would like to address just two such claims that have been the subject of recent radio ads produced by prevailing wage proponents in Missouri:

That prevailing wage laws produce “fair and competitive” bidding: This is a twist on the preposterous claim, often used by proponents of prevailing wage, which maintains that the construction industry is uniquely subject to “harmful competition” that slashes wages and reduces standards. That when wages are set by law that such harmful competition is limited. A claim of emotional argument, not objective analysis. Think about it and logic alone will tell you that if the wage portion of a contract is fixed and a bid is secured, contractors will just as likely attempt to look to other areas of their cost to make up cost overruns and lack of profit. It is construction management, performance bonding, monitoring, and oversight that ensure that construction standards are met – not the wage rate.

Lack of prevailing wage laws promotes “unskilled workers.” Proponents of prevailing wage laws maintain that in the absence of prevailing wage laws training of construction workers is inadequate. The inference put forward is that the industry depends on unions for an adequate supply of trained workers. There is no evidence that there is more of a market failure in the training of construction workers than in the training of workers in any other occupation group. There are community colleges, private technical institutes, and other training resources. In addition there is on-the-job training for unskilled “helpers,” which exist in free market construction contracts to a much larger degree than in prevailing wage contracts where contractors are motivated to restrain from hiring such unskilled helpers due to the cost disparity between the prevailing pay rate that they are forced to pay and the production value of helpers.

These claims and others promoted by the supporters of prevailing wage will have but ONE PURPOSE: To limit competition, by the force of law, to only those bidders who pay higher Prevailing Wage rates. Whenever competition is limited – prices rise. The cost of increased wage prices is at the expense of taxpayers or results in fewer government new buildings and infrastructure than would otherwise be possible with free-market bidding.

While there are many economic studies, by scholars whohave no dog in the fight, that debunk the claims by proponents of Prevailing Wage, you need only rely on your own economic knowledge base to interpret the data:

Question 1 – WHO LOVES COMPETITION?             Answer – BUYERS

Question 2 – WHO HATES COMPETITION?            Answer – SELLERS

Wage rates are what they are selling. Don’t buy their flawed arguments.

Bruce Hillis       bruce-thumbnail

A postscript in the form of a few comments.

The main inspiration for these laws is the Federal Davis-Bacon Act of 1931, still in force. Representative Davis was upset that an Alabama company employing black workers got a contract for a Long Island hospital. Since prohibiting out-of-state bidders was not possible, the expedient of prevailing wage laws was the next best way to keep local unions happy. At that time it was thought that high wages, even if mandated above the market-clearing level, helped promote prosperity. We now know that only a strong industry in a free market with strong companies can guarantee prosperity and high employment.

A particularly poignant example of how this works is the case of Joplin, Missouri. The tragic tornado of May 2011 devastated the city, which faced massive reconstruction. Lt. Governor Peter Kinder requested that the Missouri Housing Development Commission waive for Joplin its requirement that workers in all state-subsidized projects should be paid the Federal prevailing wage under Davis-Bacon. The Feds has just changed the wage scale so that a Joplin carpenter‘s wage increased from $7.98/hour to $21.47/hour. This massive increase would hurt the city of Joplin substantially to no good purpose. The commission declined, to the approbation of St Louis unions. The story is here.

There is however one Missouri labor regulation we like: “Missouri law prohibits all employers from employing aliens unlawfully in the United States to perform work within the state of Missouri.” Missouri Public Works Projects Contractor Check-Off List.

Nine states have already repealed their archaic prevailing-wage laws. Missouri should be the tenth.

Troglo      Troglo