Do Lower Prevailing Wages Reduce Public Construction Costs?

Howard Wial
Publication Date: 
February 1, 1999

Pennsylvania law requires construction contractors working on publicly funded construction or renovation projects to pay workers at a minimum the prevailing wages and benefits in their respective trades in the geographical area in which the work is performed.

In 1997, the Pennsylvania Department of Labor and Industry (DLI) implemented a change in its method of determining prevailing wage and benefit rates resulting in a reduction in the legally required prevailing rates in many construction trades in much of the state. (Although the Pennsylvania Commonwealth Court ruled them illegal on January 11, 1999, the prevailing wage and benefit rates DLI implemented were in place for more than a year.)

Opponents of prevailing wage laws often argue that repealing or weakening these laws will lower the cost of public construction projects because such action will reduce the wages and benefits of construction workers employed on public projects. Data on Pennsylvania public school construction projects during the period in which lower prevailing rates were in effect do not support this claim.

· Data on public school construction costs show no strong evidence that
Pennsylvania's lower prevailing wages and benefits reduced construction costs charged by contractors performing public works.

· Studies from other states show no statistically significant relationship between the existence of prevailing minimum wage and benefit laws and the cost of school construction.

· Lower prevailing minimum wages paid to workers have no measurable impact on public construction costs partly because wage declines lead to offsetting declines in productivity.

· Real savings in public construction costs are more likely to come from investments in worker training, which can make workers more productive, thereby lowering costs without cutting wages.

By threatening the construction industry's skill base, lowering prevailing
minimum wages and benefits moves Pennsylvania's construction industry in the opposite of the direction in which it needs to move to reduce construction costs over the long term.