Another Assumption Bites The Dust

Sometimes, evidence proves seemingly logical arguments and analyses wrong.

I used to be a critic of prevailing wage laws–I was persuaded that such laws interfered with the market for construction services and added unnecessary costs to the public projects financed with taxpayer dollars.  I agreed with those who argued for repeal of such laws by contending that if we did away with prevailing wage,  taxpayers could save hundreds of millions of dollars on public projects, because non-union contractors who didn’t pay prevailing wage would begin bidding on those jobs, generating more competition.

Unfortunately, the evidence doesn’t support that theory, logical as it seemed.

In 2017, the Wisconsin state Legislature repealed prevailing wage. The state’s prevailing wage laws established local market-based minimum wages on the construction of schools, roads and other taxpayer-funded projects. It ensured that contractors were paying their workers fair market wages while also investing in training and apprenticeship programs that ensure the state has a stable supply of skilled craft workers to perform dangerous and demanding jobs.

Evidently, available peer-reviewed research as well as an analysis from Wisconsin’s non-partisan Legislative Fiscal Bureau warned at the time that there was no conclusive evidence to support the claims being made by proponents of repeal. However, the state’s lawmakers ignored the nay-sayers, and  voted for repeal on a largely party line vote.

In early October of this year, Dr. Kevin Duncan, Professor of Economics at Colorado State University –Pueblo published a study of the results. It was the first study that examined how the claims made by Wisconsin repeal proponents stacked up against actual economic data. It wasn’t pretty.

Here are just a few of the topline findings.

Repeal has produced a 6% wage cut for skilled construction workers (about $3,000 per year, on average) and a 4% drop in construction health insurance coverage.
Repeal has led to a 60% increase in public projects going to out-of-state contractors.
Apprenticeship completion in Wisconsin is lagging neighboring states with prevailing wage laws.
Bid competition on Wisconsin Department of Transportation projects has decreased by 16%.
There have been no project savings. In fact, the per-mile cost of highway resurfacing projects has actually gone up slightly, as have “cost overruns” on road construction projects.

The obvious question is: why? And the not-so-obvious answer is a variant of what I used to tell my students about real-life policy: it’s more complicated than it looks!

The issue boils down to skill levels. When governments and companies invest in higher-skilled workers, the higher quality of the work, higher levels of productivity and better safety metrics combine to minimize waste and avoid costly mistakes.

More highly skilled workforces also experience lower employee turnover, which reduces costs to contractors.

But repeal imposes other costs that don’t show up in project bids. For example, when the wages are slashed, it means more workers are forced to rely on Medicaid, food stamps and other government assistance programs to support their families. Those costs are borne by taxpayers…. And, when policy is distorted to advantage lower-skilled workers from out-of-town, it also means the benefits of job creation and consumer spending that would otherwise be stimulating Wisconsin’s economy are now going to other states.

Wisconsin was not the only state that repealed its prevailing wage law. Indiana did so several years ago, and West Virginia, Michigan, Kentucky and Arkansas all did the same thing within the past decade.

Interestingly, according to the linked newspaper report, the Assistant Republican Leader in the Indiana House of Representatives (the story did not further identify him) “famously told a Wisconsin audience in 2017 that repeal ‘hasn’t saved us a penny.’ And study after study has shown him to be right.”

The Midwest Economic Policy Institute found that after repeal of the common wage, “Hoosiers working in the construction industry are earning less than they were before, with no meaningful cost savings for Indiana taxpayers.”

Consider this example number umpty-zillion that public policy should be based on evidence rather than ideology….

 

 

30 thoughts on “Another Assumption Bites The Dust

  1. No. I might agree that the “savings” realized by repealing prevailing wage laws triggers more public spending for unemployment compensation and social net programs. The answer to that problem is to cut the subsidies. One person’s “social safety net” is another person’s tax burden. This is particularly true with employment taxes with which employers are exclusively burdened.

  2. Prevailing wage laws!

    I’d be ashamed to claim you listened to the arguments concerning repealing prevailing wage laws!

    It was well known amongst the unions, that nonunion construction firms were paid better because of the higher base of pay concerning union jobs. But, they wanted to repeal the law so they can bring in sheep southern labor which I guarantee is inferior and the quality of work! Also, you start bringing in people of questionable citizenship that also keeps the wages low.

    Repealing the for failing wage is just a better way to stick it to the unions and hopefully run them out of business. Because, without the prevailing wage, you have people who will always bid under a union firms lowest bid. Because the unions pay for the apprenticeship programs, they also pay for the insurance, health and life, that makes union jobs attractive and that includes paid vacation and sick leave!

    After prevailing wage is gone, so are the bennies for a lot of those nonunion companies. The only thing eliminating prevailing wage produces is grift and more under the table shenanigans! No insurance, no vacation, no overtime pay, and very little safety regulations! We would hear about accidents where OSHA would never be contacted, road building in Wisconsin was a prime example of the poor quality of work after repealing prevailing wage. They actually had to reengineer Highway 94 from the Illinois border out towards Minnesota because of poor materials and construction. 2 years later after the 1st completion. How is that saving the taxpayer any money?

    But hey, everyone knows how ignorant Wisconsin is, the companies that want to relocate there, beg for TIF, so that the citizens carry the burden of the company’s relocation, along with public works and utility upgrades, so all of it is intertwined! All of this points to welfare of the corporate kind! The rich get richer and everyone else gets the crappy end of the stick! $15 an hour minimum wage is a good start, but universal healthcare, paid overtime, paid vacations, family leave, this all should lead to a national union! Politicians don’t look for what’s best concerning the workers, they look for what’s best in their political contributions received! It’s disgusting.

    Next, you should write an article on right to work laws! Because those laws work hand-in-hand with the repeal of prevailing wage, including, workers compensation, and hamstringing the unions! It’s all designed to drive wages down for the middle and lower middle class citizens who are living paycheck to paycheck. But those same states have their hands out to the federal government, as most of those states are the taker states and not the maker states!

  3. This is all part of the great Reagan/Republican/Friedman lie. Hourly wage earners tend to spend every dime they’re paid. What part of “pay them a good salary and they will spend it on stuff to generate more demand and thus more jobs” don’t Republicans understand? Even Henry Ford understood that paying his line workers real money they could afford to buy the cars they built. DUH!

    But this is what happens when cost accountants run and operate politicians. The bottom line of the quarterly reports leads them, not the longer term consequences of their parsimony.

  4. “Cincinnatus was a conservative opponent of the rights of the plebeians (the common citizens) who fell into poverty because of his son’s violent opposition to their desire for a written code of equitably enforced laws.”

    Fred Trump and Donald Trump!

    “The Midwest Economic Policy Institute found that after repeal of the common wage, “Hoosiers working in the construction industry are earning less than they were before, with no meaningful cost savings for Indiana taxpayers.”

    Repealing prevailing wage laws has been proven to be a moot point in construction and manufacturing for working class Americans while Citizens United proved it to be a boon to corporate heads. That ideology is the basic “logic” of Trumpism and White Supremacist governing; the Pandemic appears to me to be a boon to Trump supporters; including those in his administration and Congress. As always it is “Follow the money!” The Covid-19 Pandemic will not kill that off even with the change in administration scheduled for noon Wednesday, January 20th. As President Abraham Lincoln so wisely stated, “A house divided against itself cannot stand.” and those within our Congress who appear to have aided and abetted the insurrection on January 6th are still standing strong.

    The inauguration of Joe Biden and Kamala Harris will not automatically weed them out of our government or end their fight against democracy, that is an assumption. They will have to be removed by Rule of Law and using the Constitution as it was written to protect the nation. As the Trump administration ends, our work begins to begin voting them out by local and state elections. Rebuilding the ailing and broken employment system and restoring the common wage system will need to begin anew.

    “Consider this example number umpty-zillion that public policy should be based on evidence rather than ideology….”

  5. May I add that the same is true of raising the minimum wage. It’s not popular among Republican lawmakers. They claim it costs jobs, but it hasn’t yet. Never let it be said that mere facts would enter into any discussion of economic policy by Republicans.

  6. Let’s do some math…if cutting wages to workers didn’t result in savings to “public projects,” where did all the money go? LOL

    Good grief, Sheila!

    Oh yes, the proponents of extractive economic systems can’t seem to get their heads around quid pro quo and “pay to play” crony capitalism.

    I see Indy area LLC’s forming to bid on public projects in Muncie with just one or two members. Of course, the contracts allow for cost overruns. The next thing you see are Mexican labor in town completing the projects. Gee, I wonder if they are legal or not? LOL

  7. Construction prevailing wage (PW), that normally corresponds to the union wage, varies by geographic region. The PW in DC is low compared to PW in NYC.

    As a consequence, many NYC skilled construction workers are unwilling to travel to DC for infilled construction jobs. That is the way many of those infilled jobs go to immigrant construction crews.

  8. Hey John Sorg! As a Wisconsinite, I take offense (with a smile) at your sentence, “But hey, everyone knows how ignorant Wisconsin is”.

    I’m going to go out on a limb here and guess that the ignorance of your public officials in Indy can perhaps “see and raise” the ignorance of our Wisconsin legislators. Just guessin’.

    Of course, we’re subjectively debating about who’s queen of the pigs rather than something objective like your Colts vs. my Green Bay Packers.

  9. Floridians voted in November for a statewide $15.00 minimum wage by 60.8% implemented in full by 2026. We just got an increase for this year of 9 cents bringing the minimum from $8.56 to $8.65. I’m sure the lawyers are working daily to make sure the $15.00 minimum never happens here

  10. Cincinnatus,
    Yes, why not burden the worker?

    Paying into unemployment insurance and social Security andand various other federal state and local taxes through your payroll deductions, has nothing to do with prevailing wage! The only thing that repealing the prevailing wage does, is allow your wages to be driven lower by unfair or unseen competition and you are still paying a high tax burden!

    like I said earlier it goes hand in hand with right to work laws which Wisconsin is a member of that group! It just reinforces downward pressure on wages, therefore forcing those which should be self-sustaining good jobs into jobs that have to be supplemented by social programs for the people to survive!

    And yes, there has always been a problem after repealing prevailing wage laws, that you have questionable employment practices concerning immigration and such which apply even more downward pressure on wages along with right to work and the like!

    It’s always about putting the burden on the citizen to take more risk and less reward!

  11. Wealth is the difference between what is a living wage and what they paid you. Understand, there has to be profits for a capitalist society to survive but profits should be earned and not stolen. When profits aren’t earned you have a stock market at all time highs while millions suffer.

  12. This says it all Dr. Sheila, “public policy should be based on evidence rather than ideology….” And where do you get evidence? Pilot stuff before spraying. Think about “unintended consequences” and “how could someone game this for their own private advantage?”.

  13. Sorry to stray from the topic. The minimum wage is an irrelevancy right now as no employers are paying $7.25 an hour because the marketplace has long ago passed it by. I defy anyone to come up with an employer in Indianapolis who pays $7.25 an hour. You might be able to find a few who are paying $10 an hour for entry level jobs, but more likely it will be in the range of $12 an hour for the lowest level jobs.

    The notion that raising the minimum wage won’t cost jobs, or employers cutting back on hours, depends. If the minimum wage were raised to $10 an hour, because, again, no body is paying less than that. Raise it to $15 an hour, and yes, some employers will cut jobs and cut hours.

    The blanket assertion that raising the minimum wage won’t cost jobs/hours is to defy the law of economics. If raising it won’t cost jobs/hours, why stop at $15? Why not $20 or $25 or $30. Because the fact is raising the minimum wage, once it crosses where the market has driven wages, will start costing jobs/hours.

  14. I wonder how many Americans know that Adam Smith (Wealth of Nations, 1776), one of the most influential enlightenment philosophers on American “founders” and often considered to be the founding father of American Economics argued in favor of a living wage.

    As Adams pointed out, an income that affords a decent life and education is necessary in a free society, Individual freedom within that society and a truly free market. He even acknowledges that every employed man (consider the times) did not simply have to keep himself alive and well enough to work another day, he had to earn enough to raise the next generation of workers and cover the costs of the wife whose labor provided the needs for the “reproduction” of both the employed males labor (meeting his day to day needs) and society’s future labor.

    So much for Conservatives accusations that those pushing for living wages are a bunch of socialist, commies, free-loaders. Adam Smith was actually relatively conservative – and while he saw the value of labor, he had a huge blind spot when it came to slavery (which he took for granted, treating slaves as chattel), indentured servants, and other groups that colonist exploited or killed off. But he did provide a vision of what a free economy (at least for free White men) in a free society would look like – and its nothing like the purported “free market” concepts in place today.

    There is also a problem with the idea of “market wages” as they reflect not some carefully calculated, “invisible hand” fair wages for labor. In our current economy, especially with the sever decline of Labor Unions, market wages amounts to the least amount employers can get away with paying labor.

    There is a reason why labor has gained less than zero of all economic growth for the last three to four decades and the upper 10% of the US population have received a huge majority of the financial growth in US economy…growth created by the labor of the rest of the population, especially the lower 60 %. It’s the redistribution of the full value of labor being claimed by the mega wealthy.

    It’s a great system – don’t work (unless you call management of one’s personal wealth productive labor), just have gobs of money and invest it – not on the basis of what is in the best interest of the country and its citizens but rather based on which investment is likely generate the highest profits at the fastest rate with the least risk.

    There is not growth in the economy, there is no profit, no production, unless the people provide the labor to create it. Given the absolute necessity of labor and the importance of the people who provide it, seems to me that we need a slow and relatively small trickle up economy, not trickle down.

    If you don’t believe me, Consider how hard Conservatives (and the CEO’s & the upper 10% ) tried to get people to go to go back to work – even as the risk of Covid-19 and its consequences grew – all in order to “save” Wall Street and Mega Corporations Even our President seemed more concerned about the income and wealth of the richest folks than the welfare and life of laborer and their families.

  15. I used to be a docent in Florida at a location where people could see and learn about the behavior of manatees in their natural habitat. There was a prominent sign expressing a philosophy held by the people who founded the park. “Everything is connected”. In that place, it was a reminder that nature evolved by life serving life. The evolution of the entirety of life is based on interconnections between multiple species, each in its own niche, but as one means of collecting solar energy and recycling all of the matter that they all needed.

    There is a useful subplot though in all of that which is that everything is complex. Often what seems to be understandable through simple analysis is much more complex than that because there is a cacophony of interconnections among everything human that means changing one thing has an impact on everything else. When a butterfly flaps its wings in Mexico the weather changes in Japan. In other words, every action has both intended and unintended consequences and some are separated in time from the original by a lot.

    As an engineer experience taught me that every solution that my team proposed needed to be thought of as a prototype, a possibility, a concept that seemed like the benefits were more consequential in a good way than the risks but only time would tell. Try it, measure as many of the consequences as possible and keep an open mind to failure as well as a bias towards success.

    Experience in life has taught me that those work-related concepts applied equally well to virtually everything that humans do.

  16. I have been a Davis-Bacon aficionado since its adoption – too bad states and counties are not similarly bound by its prevailing wage requirement. Such un-adoption is, of course, a corollary of right to work laws, both designed to punish labor for daring to unionize and/or stand up for better wages and working conditions. In Germany union members BY LAW sit on the boards of the corporations they work for while their members make 35-40 dollars per hour, and while Geneva, Switzerland, has a minimum wage of 25 dollars per hour, all while we live in states that BY LAW (or the lack of it) impoverish our fellow citizens with a promise in some states that we will pay them 15 dollars an hour someday (in increases akin to inflation). That revocable promise has been in waiting for so long that we are into 20 dollars per hour territory, effective and payable today.

    Can’t afford it, say employers? Wrong. See the Seattle and European experiences. If employers can’t afford to make such wage accommodations with amended business plans, then pursuant to the brand of capitalism they pretend to adore they should go out of business and let those who can make such accommodations thrive by their absence as increased demand neuters such marginally increased wages.

    As to Sheila’s note, there’s an old saying that “You get what you pay for,” and that applies to labor. Germany with its labor apprentice programs has managed with its more productive workforce to pay high wages and still come in second only behind China with its billions in trade surplus while here we pay poverty wages and lead the world by far in trade deficits, which lends the lie to the usual Chamber of Commerce propaganda that “we can’t afford it,” and since the experience of others prove that we can’t afford NOT to pay more productive workers better, all not to mention the beneficent effect of such increased wages on aggregate demand in our domestic marketplace resulting from greater withal in the hands of consumers.

    Truth be told and at base, American employers want to hold wages down in order to increase their profits (without regard to the effect on our overall economy, the billions in trade deficits which increase our national debt etc.). Want to increase profits, demand, reductions in trade deficits, Mr. Employer? Raise wages, and tell your politicians to adopt labor apprentice programs across the board, programs that pay for themselves and then some, along with repeal of their primeval right to work laws and regulations the require “cheapest is best” labor. contracts.

  17. Paul – I disagree. The current $7.25 an hour base is relevant in that it affords prospective employers a base from which to dicker, whatever the ultimate wage may be. A twenty dollar an hour base from which to dicker, for instance, would even the playing field between work and investment.

  18. Todd, cutting wages doesn’t necessarily save you money. Sheila explained many reasons why this can be so in her post. Did you not read it?

    In my experience, my more experienced, higher-paid workers were way more efficient, quick, thorough and reliable, turnover was much lower (reducing time and cost over-runs for retraining and rework), quality was much higher, etc. Basically, they were way more cost-effective. I could go on, but the point is that if you think that simply lowering wages reduces the cost of a project, then you really aren’t considering the situation with enough care. You lose money in re-work, cost and time over-runs, overtime, training, etc.

    Good grief, Todd!

    Next, we’ll be arguing that the Laffer curve is worthwhile despite the mountains of evidence refuting it.

    There are any number of psychological aspects as well. As an example, I’ve worked with and for people who honestly believed that treating people harshly at work (say, by knowingly giving them tasks that couldn’t be completed in the time available) was a good way to get people to work hard and produce more. It’s exactly the opposite. It burns people out, creates stress and resentment, lowers morale, and ends up producing inferior work. When you treat people well and fairly, you get more out of them, generally. (Bad apples who may take advantage of this situation simply won’t get raises or benefits the others do, and can eventually be released.)

    It’s similar to the effect of confidence and comfort on students and athletes. Those feeling a ton of stress and pressure will generally do more poorly, than those feeling confident. There may be a few short-term benefits to applying pressure, but you better keep that _really_ short-term, or you are just asking it to go to hell quickly, and you’ll deserve the result you get.

  19. Rhonda – Kudos! Investment facilitates but does not create wealth. Labor does, and we have confused class with labor thanks to propaganda by investors, i. e., lawyers, doctors, and anyone whatever his/her degree of skill is labor, and it is far past time that labor collects its just reward in this tilted to the rich economy. Next problem for another day’s discussion > Who owns Silicon Valley’s creations and how will we fairly distribute and redistribute the wealth they create while we humans stay home?

  20. Setting anything in motion is not as simple as kicking a rock downhill; it’s more like triggering the little steel ball in a pinball machine — no one can predict all the engagements that ball will make with bumpers, cushions, springs, levers, rails, walls, lights, gongs, sirens, intensifiers, and reducers, each having its effect on the outcome of where the ball ends up and the score tallied. — My explanation of Game Theory

  21. Rhonda Ovist,

    WOW! Right on point, right on target! Excellent comment. Thank you for the enlightenment, there are some things in your comment that I will research, put this brain to work, thank you for expanding my knowledge.

    Gerald,

    I agree totally, all empirical evidence shown, absolutely proves, that higher minimum wage does not drive down job production! As a matter of fact it increases jobs because demand is higher as people have more money. The general public is a threat when they have much better wages, because they don’t have to be concerned as much with trying to survive! Therefore their attention turns to making their lives even better, which terrifies the upper echelon of our caste system. It takes the money out of their treasure chests, or so they believe!

    The current minimum wage is just a suggestion, and there are many who make below that even in Indiana I might add. Most waiters and waitresses make $1-$2 an hour plus tips! Those who bus tables, wash windows, landscaping and such are done mostly by immigrants from either Europe or Central and South America. And, they make substantially less than the current minimum wage! The lower the wage the more enrichment of those upper cast individuals!

  22. I worked on Davis-Bacon wage surveys on the West Coast from 1998 until I retired in 2006. DB – is very messed up – yes! The Surveys are done in a way that is “corrupt” and inefficient and not user-friendly to the contractors, those that are being surveyed.

    That being said, Prevailing Wages – are important – in having a stable , safe construction industry. Legitimate – honorable – non-Union contractors want stability – and are fine with paying high wages and benefits. They can’t survive in a market – where – competitors will travel (mostly from the South) and pay their workers (many of whom may be sub-standard) very low wages – and/or wages that are “ok” in low-pay markets, but are not viable in places where the cost of living is high.

    Profiteering – by a Few – having Huge Profits – and low wages/benefits – continues and builds the Divide – between haves and have-nots. Competition – is okay. Unfair competition – is toxic.

  23. I understand that you have said, Sheila, that you used to be a standard Republican. Insofar as I know, ALL the old standby conservative economic arguments are not worth the paper a dollar bill is printed upon. The invisible hand of economics is a myth, and so on.

  24. Thank you, Sheila. It is time we quit the “I just know it must be” (Sorry Paul) and looked for data.

    Here is one of my “I just know it must be” ideas – if you treat workers like worthless interchangeable drones, the quality of the work and the loyalty of the workers goes way down.

    Oh, we had an example of that (data) – Sorry for calling out your misinformation slant on real information, Vernon, but Henry Ford only talked about his workers affording his cars after the fact. It was a high turnover rate that caused him to raise what he paid workers. Before that, people would leave in droves, sometimes not returning the next day, or walking out for lunch and not returning. High wages kept workers on the job, and as a side benefit, they could afford to buy what they made (also because Ford switched from Model K –“cars for the rich” to the Model T). Sorry – Detroit native who likes to remind people that Ford was less genius and more bigot.

    John – of course some people feel that prevailing wage is a bad idea. It supports the idea of the dignity of work and the dignity of workers. We can’t have those ideas going around. The next thing you know they will be demanding unions, benefits, workplace safety, — and respect. Gracious, we can’t have that. 8)>

    Our “Founding Fathers” abhorred the idea of a hereditary aristocracy. So we have developed a hereditary plutocracy instead. If you mess with wages and the “truths” of Ayn Rand’s novels, well you might just create a thriving middle class and the wealthy will merely be wealthy and not uber-wealthy.

    Rhonda – to expand on what you brought up about Adam Smith (thank you for that) he also believed that if workers tried to unite for higher wages, the government would intervene, but if employers tried to get together, “competition” would magically fix that. He didn’t understand a race to the bottom.

    One more item, but I don’t have the source. From Reagan’s administration on, we started to “outsource” government work – everything possible. I can’t remember the study, but I do remember the bottom line. Outsourced IT led to high costs, lower wages, and higher profits for the outsourcing companies and their top brass.

  25. I read the first paragraph and I instantly knew that out of state contractors would be getting more contracts. Didn’t the law makers figure that out.

  26. The Building Trades Unions accurately predicted what would happen if the prevailing wage law was repealed. Workers would see lower wages even though costs for taxpayers would rise. In that bargain, quality would suffer, and the gap in income between workers and contractors would increase. If robbing the workers to enrich those at the top is the goal, repeal of prevailing wage works perfectly. It’s also a perfect example of supposedly knowing the price of everything but the value of nothing.

Comments are closed.