Why is repeal called for? Prevailing wage laws increase costs borne by the state, municipalities, and school districts and transferred to tax-payers by:
- artificial, high minimum wages
- burdensome and expensive regulations
- limiting competition
This is not complicated. It is basic supply and demand economics.
The most basic axiom of economics is known to us all: IF YOU REDUCE THE SUPPLY – PRICES WILL RISE. It’s that simple. Prevailing wage laws reduce the supply of competitive bids, significantly increase the total costs of projects, and indirectly increase the burden on taxpayers. Add in required record keeping (so the state can compute the “true” prevailing wage for each craft in each locality) and the net result is fewer bids from non-union companies and substantial unnecessary costs to projects subject to prevailing wage. All this is well documented in the academic community as are the fraudulent claims of harm if prevailing wage legislation is repealed.
Please note that Wednesday there will be a hearing in Jefferson City by the Senate Interim Committee on Labor Reform, Senator Dave Schatz, Chairman. It will take place in the Senate Lounge at 1 pm. You can testify whether you will be present or not. Simply fill out this form:
Scan and email it to Senator Schatz, at firstname.lastname@example.org
Before getting into economic analysis below, I think it might be worth mentioning how unfair prevailing wage laws are. At least minimum wage laws, however harmful, apply to all workers. Prevailing wage laws apply only to construction workers. Both laws create unemployment, but prevailing wage laws tax all to benefit only a chosen, privileged few. How can this abuse of government power be called fair?
You won’t hear supporters of Missouri’s prevailing wage law mentioning unnecessary red tape or the unjust “transfer of wealth” effects of prevailing wage. Instead they disguise the real effect of prevailing wage by suggesting that less experienced workers, higher injury rates, lower wages, less health coverage and the effects of “harmful competition” will result if the prevailing wage law is repealed. They will also speak glowingly about higher increased earnings and taxes and the economic benefit that accrues from the “spending cycle” which results, they claim, from the higher prevailing wage rates.
Proponents of prevailing wage will also claim that there is a downward spiraling “multiplier” effect to all wage earners when prevailing wage laws are repealed. This claim is sometimes backed by studies, commissioned by the supporters of prevailing wage, that disregard and ignore the economic value of the savings that accrue from the repeal of prevailing wage. They ignore the fact that these savings, either in form of reduced taxes to citizens or reduced cost to the state, it will reenter the economic cycle for other uses: e.g., other labor projects, other purchases, other services, etc..
For example: One recent study claimed that repeal of prevailing wage in West Virginia would reduce construction income (wages) by $31 to $47 million and result in a total loss of $51 to $77 million in wages, after application of the “multiplier effect” (spending cycle). This study also claims the reduction of income and sales tax revenue to West Virginia of $4.5 to $6.8 million. Such studies ignore the effect of the economic benefit (for wages and other expenditures) of alternative utilization of the savings on construction wages as well as the multiplier effect of such alternative uses. In addition, the income and sales tax revenue that would be derived from these alternative wages and expenditures is ignored.
Intuitively we know that if all labor costs were to be increased by law, prosperity would be harmed, not increased. Aggregate prosperity is improved only by increasing productivity – not by increasing wages. Increased wages, without an increase in productivity, only transfers wealth and reduces prosperity. If the opposite were true you would need only to pass a law increasing the minimum hourly rate to $500 per hour and we would all get rich.
Proponents of prevailing wage also claim that all deficiencies or problems of prevailing wage laws can be cured by improving the “paperwork,” the reporting of wages used by the Missouri Department of Labor and Industrial Relations to calculate prevailing wage in each reporting area of the state. Utter nonsense. First, as any contractor knows, unnecessary labor cost to “pick up a pencil” can increase the cost of construction just as much as an unneeded carpenter picking up a hammer. It’s the equivalent of government forced “featherbedding”. No one is motivated to add unneeded cost to his overhead and will do so only when forced to by law.
I would like to address two other claims made 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. Thus 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 low bid is secured, contractors will just as likely look to reduce costs in other areas. Thus grade B materials are used instead of grade A.
It is construction management, performance bonding, monitoring and oversight of construction specifications that ensure that quality and other construction standards are met – not the wage rate.
- Lack of prevailing wage laws promotes “unskilled workers”: Proponents of prevailing wage laws maintain that in their absence the training of construction workers is inadequate. The inference 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 for any other occupation group. There are community colleges, private technical institutes and other training resources besides labor unions. In addition there is on-the-job training for less skilled “helpers”, who abound in free market construction contracts. With prevailing wage contracts contractors are motivated to hire union workers rather than less skilled helpers due to the cost disparity between the prevailing pay rate that they are forced to pay and the productive value of helpers.
These and other claims advanced by the supporters of prevailing wage laws are a complete disguise of their real PURPOSE: TO LIMIT COMPETITION BY THE FORCE OF LAW. This purpose applies to both sellers of labor and sellers of construction contracts. The sellers of labor (unions and other labor organizations) want to limit the competition from others who might offer their labor at a lesser price; and sellers of construction contracts want to limit bidders to only those who pay comparable wages as they do, whether by force of union contacts or the force of prevailing wage laws.
Why is the real purpose (limited competition) disguised behind all these claims? As anyone with the most basic understanding of the way markets function knows: when competition is limited prices rise. It’s basic “supply and demand stuff.” Added costs due to increased wages are paid by Missouri taxpayers. This results in fewer and lower quality government buildings and infrastructure or other “goods and services” than would otherwise be possible with free-market bids.
Of course proponents of prevailing wage can’t sell a prevailing wage scheme on the singular purpose of raising labor costs so they must attempt to justify the law with false and misleading claims.
There are many economic studies by scholars with 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 determine that buyers love competition and sellers hate competition.
Reduced competition is what the sellers of prevailing wage are seeking. Don’t buy their flawed arguments that disguise the hidden purpose of Missouri’s prevailing wage law.
Mexico, MO 65265
August 13 , 2017