Policy Based on Evidence Could Lower Public Construction Costs and Create Jobs

Stephen Herzenberg
December 6, 2011

Some Harrisburg politicians have a novel idea about how to create more jobs in Pennsylvania. They want to slash the middle-class wages of construction workers who build schools and fire stations in our communities. If that means hiring less experienced builders who will take longer to get the job done and make costly mistakes, so be it.

Does that sound like a winning jobs policy to you?

I like to think that public policy is shaped in part by logic and evidence, but the current legislative debates about Pennsylvania’s prevailing wage law illustrate just how naïve that notion is.

The law requires that jobs on public construction projects pay occupation- and area-specific minimum wages that typically range from $15 to $35 per hour.

The Pennsylvania Legislature is considering various proposals to weaken this law. Some workers on public projects could see their wages plummet from $25 per hour with health and pension benefits to $12.50 with no benefits.

Why do this now? To erode the buying power of working families because their consumption is too robust in this economy? To see the unemployment rate climb over 10 percent again?

No, supporters say, we need to weaken prevailing wage laws because they are driving up construction costs by 10 to 30 percent. Is there any logic or evidence to justify these claims?

To support these assertions, conservative think tanks have produced a cottage industry of reports containing hypothetical or “what if” calculations. If labor is 30 percent of the cost of a project and labor costs $30 per hour, what if you paid only $15 per hour? That would save 15 percent, they crow.

This line of thinking has been paired in recent media reports with anecdotes that follow the same “what if” logic. Press stories may quote a local government official saying: “We bid our project first without prevailing wage. Then we asked the winning contractor how much the cost would go up if they had to pay prevailing wage. The price went up 15 percent.” This is just a variation of what the right-wing think tanks do: the contractor assumes the same labor hours and simply increases the labor cost.

But “what if” calculations are not actual experience; they are really little different than conjecture. In the case of prevailing wage, the what if calculations fall apart with a little scrutiny. Why? Because when you pay less for labor, you don’t necessarily get the same quality of work. Lower quality labor might use more hours and could require more rework. The project might cost as much—or more—without prevailing wage.

At the very least, you can’t simply assume that you will get the same productivity and skill level if you slash the workers’ pay. You have to look for some real-world evidence.

The good news is there is plenty of evidence. It comes from comparing construction costs in states with and without prevailing wage laws. It also comes from “before and after” looks at construction costs in states that got rid of prevailing wage.

Variation across states and over time makes it possible to sort out statistically, from thousands of actual construction projects not one phone call about one prospective project, whether prevailing wage laws drive up costs. It turns out they don’t.

This finding wouldn’t surprise the owner of a Delaware contractor who told me much of her business comes from rewiring private commercial jobs not covered by prevailing wage. In one supermarket, the wiring “looked like a bird’s nest”—about what you‘d expect from a low-ball contractor using workers without training and experience. Maybe we should re-label our prevailing wage law the Pennsylvania Quality Construction Act.

If there are any savings at all from eliminating prevailing wage laws, the owners and executives of contracting companies must pocket them. Sounds like a way to take money from the 99 percent and give it to the 1 percent.

The data show that one factor does drive up construction costs: undertaking projects when demand is high. By contrast, undertaking projects with the market in the tank—like now—can save 20 percent.

So if policymakers were interested in an “evidence-based” construction policy, they would keep the state’s prevailing wage law and create a “Buy Low” fund to subsidize countercyclical construction. Better value for taxpayers’ and jobs when workers really need them. Now that would be a novel idea.

A version of this Op-Ed originally appeared in the Patriot-News on December 6, 2011.


Download this Op-Ed84.87 KB