End Not Justified by Means

Stephen Herzenberg
Publication Date: 
October 1, 2003


An Analysis of the R. S. Means New Castle County Assessment of the Economic Impact of Adopting Prevailing Wage Laws on New Castle County Government Construction Projects In May 2003, R.S. Means Company, Inc. of Massachusetts submitted to New Castle County Government (NCCG) an estimate of how much a county prevailing wage law might cost the county. Such a law would require that workers on county construction projects earn at least the state of Delaware prevailing wage in their construction trade. Means claims that a county prevailing wage law could increase costs to New Castle County by $49.5 million in year one and $309.5 million over the first six years. The methodologies used to generate these eye-popping numbers, however, are fatally flawed. The Ripple Effect on County Wages Nearly two-thirds of Means’ projected increase in costs results from assuming that the prevailing wage law would create a ripple effect that ramps up the wages of county employees. Wages and benefits for workers in county construction occupations are assumed to increase by 31 percent, roughly the gap between what these workers now earn and state of Delaware construction industry prevailing wage levels. This difference is then assumed to trigger a bump in the wages and benefits of all county employees by the same 31 percent. These ripple effect assumptions are implausible. They ignore the fact that government construction workers who work full-time, full-year in stable government jobs tend to earn much lower hourly wages than private sector workers on project-based jobs covered by a prevailing wage law. Three real-world examples prove the point. * In Delaware, unionized construction workers employed by the state government are not paid anywhere near state of Delaware prevailing wage levels, earning only 46 to 67 percent of this level. * In Philadelphia, city construction employees, while represented by a union, earn only half to three fourths of the city of Philadelphia prevailing wage. * In Pennsylvania, state government construction workers are paid only 60 to 86 percent of the state prevailing wage and benefit level in the capital city of Harrisburg. Since Means is wrong to assume that a county prevailing wage law would drive up the wages of New Castle County Government construction workers to the prevailing wage level, it also has no basis for its second assumption -- that a big hike in construction wages would lead to a similar big hike in wages and benefits for all New Castle County workers. Impact on the Cost of County Capital Construction Projects. The second-largest fraction of Means’ projected cost increase ? 35 percent -- results from higher estimated capital construction costs for New Castle County in the future. This cost hike results from assuming that productivity is the same with and without a prevailing wage law. Means then assumes that all construction worker wages and benefits on County contracted projects will jump by the gap between non-union or “open shop” labor costs and state of Delaware prevailing wage levels. Rather than making an arbitrary and controversial assumption of equal productivity, a preferred methodology for evaluating the cost impact of prevailing wage is to look at real-world differences in constructions costs when a prevailing wage laws is and is not in effect. Professor Peter Philips and co-authors have done this exhaustively, documenting that prevailing wage laws make little or no difference to construction costs. * Across the United States from 1991 to 1999, prevailing wage laws did not have a statistically significant impact on school construction costs. Other factors, especially the unemployment rate, did have a big impact on costs. * In Michigan in the 1990s, school construction costs did not differ significantly during a period when the prevailing wage law was suspended compared to the before and after periods with the law in effect. Actual experience also reveals that lack of prevailing wage laws leads to less investment in workforce training, higher injury rates, and to lower wages and benefits. All of these have a negative impact on productivity and on the ultimate cost of construction to the taxpayer. Even on its own terms, the Means analysis of capital construction costs has errors that inflate estimated cost hikes. * It assumes there would be a labor cost increase on every project, whereas there would not be at contractors that already pay union scale. * Some of the future construction projects on which Means assumes labor costs would increase may already be subject to state or federal prevailing wage laws, so that a county law would have no substantial impact on worker compensation on those projects. In sum, R.S. Means does not justify the end or conclusions of its study -- there is, contra Means, evidence a prevailing wage law to have a major impact on New Castle County up-front costs for construction or county employees. In the long run, a prevailing wage might save the County money over time by improving the quality of construction and hence lowering life-cycle building and sewer costs. This document is an on-line summary of a Keystone Research Center report. The entire report is available for download as a PDF file at the KRC Web site www.keystoneresearch.org © 2001 Keystone Research Center