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* From Gov. Bruce Rauner’s State of the State Address…
Empowerment means giving governments the ability to lower costs by reforming project labor agreements and prevailing wage requirements that block true competitive bidding. These requirements can increase the costs of taxpayer funded construction projects by 20 percent or more.
As we all know by now, Gov. Rauner has since made getting rid of the prevailing wage a key demand of his “Turnaround Agenda.”
* But…
That’s not mathematically possible, according to Frank Manzo of the Illinois Economic Policy Institute.
He points out that wages only account for 20 to 25 percent of the cost of public construction projects, so reducing costs by that amount solely through wage cuts would require paying workers something close to zero.
The range may be more like 20-30 percent, but point taken.
* There are also studies showing that low wage states have higher total costs. For instance…
While the hourly wage rate for the high wage states was 73 percent more than the low wage, labor hours were 35 percent less and total cost per mile was 4 percent less. Again, not only was hourly wage rate a poor predictor of total highway cost per mile, but there were cost per mile savings associated with construction in the average high wage state
And…
Economic research that is summarized in this report indicates that the use of skilled construction labor is very sensitive to wage rates. As wages decrease, less productive employees replace more skilled craft workers. Manual labor is also used instead of productivity - enhancing capital equipment. In a comparison of states with “ weak ” or no prevailing wage laws to states that have “average” or “strong” laws (like Michigan’s), value added per construction worker is 11 percent higher in the states with effective wage policies. .
posted by Rich Miller
Thursday, Jul 23, 15 @ 11:08 am
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In other words, businesses will adjust as needed to maximize THEIR profit …
Comment by RNUG Thursday, Jul 23, 15 @ 11:12 am
Who doesn’t know this already?
Do you hire the cheapest, least experienced carpenter, plumber, electrician, etc. to work on your house? Gets you nothing but headaches.
Comment by Wordslinger Thursday, Jul 23, 15 @ 11:14 am
==would require paying workers something close to zero.==
Otherwise known as Rauner’s dream scenario.
Comment by Roamin' Numeral Thursday, Jul 23, 15 @ 11:14 am
This kind of sloppiness is becoming a Rauner trademark and poses the question of whether he is misinformed, over-simplifying complex issues, or just lying.
Comment by Harry Thursday, Jul 23, 15 @ 11:15 am
The Rauner travelling powerpoint schtick was well received because it appeared as if the guv was rolling up his sleeves, digging into the details, and effectively supporting his proposals.
In reality, those power points were as hollow as his support for state employee pay. I mean he cant even mention his reforms in public anymore.
At least Rod went full bore on GRT.
This guy made a few speeches and retreated to room 207.
Comment by Abe the Babe Thursday, Jul 23, 15 @ 11:15 am
Remember;
Workers make too much money. To get more people to work Rauner requires lower wages so more people can work.
I keep lookin’, but how lowerin’ current wages is a GOP staple to build a party.
The overt anti-worker governing by Rauner, those cowardly “7″ HGOP that walked away from the Union Bill… At what point can Rauner just publicly say, “I want Unions gone, wages for workers lowered, and collective bargaining eliminated”…
… and see how that works in an election…
Comment by Oswego Willy Thursday, Jul 23, 15 @ 11:16 am
None of Rauner’s math has added up. Campaign promises of lower taxes, AND increased spending promises while already in a deficit can’t add up.
Comment by DuPage Thursday, Jul 23, 15 @ 11:16 am
Frat boy response: This is a sham study put together by corrupt union bosses eager to shaft the poor innocent taxpayers. (/s)
Comment by Norseman Thursday, Jul 23, 15 @ 11:18 am
From extensive experience- lowest responsive bidder does not equate to lowest cost or best quality.
Other than Michigan how many highly unionized states have moved to RTW? It is one thing if it has always been RTW, a completely different ballgame to move to RTW. In one scenario wages would likely (assumption) be lower, in the second scenario the assumption is that wages would be driven down. Tough to sell to Joe lunch bucket.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:18 am
Love this quote at the end of the story:
“The economic claims may be a facade for another motivation. ‘When you look at the evidence, you don’t see any economic boost’ from eliminating the prevailing wage, ‘but you do see a huge impact on declining unionization,’ Manzo said. ‘That means more power for employers, less power for employees, more wealth for the wealthy.’”
Comment by Norseman Thursday, Jul 23, 15 @ 11:23 am
Wikipedia says the Policy Institute is aligned with labor. Are they considered straight shooters in their analyses?
Comment by Anono Thursday, Jul 23, 15 @ 11:29 am
Bottom line - Illinois has a reputation as being expensive place to build and run a business. Prevailing wage necessarily drives up the cost of building a plant (when tied with any state incentives). Work Comp. costs only add to the woes.
That reputation makes it very hard to attract new businesses or get companies to expand. Overcoming a poor reputation is tough enough for economic cheerleaders (just ask Decatur). Refusing to explore possible solutions only makes it tougher.
Comment by Downstate Thursday, Jul 23, 15 @ 11:31 am
Anono, numbers is numbers.
Comment by Rich Miller Thursday, Jul 23, 15 @ 11:34 am
Wisconsin and Michigan are the two highly unionized state to move to RTW. The economic impact seems to be minimal in terms of economic growth. When comparing Wisconsin and Minnesota of late, Minnesota has experienced a substantially higher rate of economic growth. The states are nearly the same demographically so the results are very interesting.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:37 am
Downstate: What you say directly counterdicts what I understood from the article…prevailing wage actually saves money. And no one has refused to explore the alternative. That’s what this entire post is all about. And the alternative isn’t a good one.
Comment by Skeptic Thursday, Jul 23, 15 @ 11:39 am
- JS Mill -,
With respect.
Illinois is not Wisconsin or Minnesota.
If either state had a “Chicago” and the Agriculture of an “Illinois”… They’d be… Illinois.
Let’s not discuss the Legislatures of all three…
With respect…
Comment by Oswego Willy Thursday, Jul 23, 15 @ 11:40 am
Every school district is strapped for cash due to increasing benefit costs, salaries and declining funding from Springfield. No matter how much savings are at issue allowing school districts the option of opting out of prevailing wages would be welcome
Comment by Sue Thursday, Jul 23, 15 @ 11:41 am
==hourly wage rate for the high wage states was 73 percent more than the low wage, labor hours were 35 percent less and total cost per mile was 4 percent less.==
Profit Jackpot to the contractor! These numbers produce 11% more profit for the less efficient contractor paying less wages but being paid 4% higher total “costs.”
This is a goal of “corporate class” for sure. “Political class” hopefully understands that the more money that gets into the hands of people who spend it, generates economic heat/growth.
Comment by cdog Thursday, Jul 23, 15 @ 11:44 am
“Anono, numbers is numbers.”
A union-supporting think-tank puts out a study, and “numbers is numbers”? Does that apply to IPI, too? It didn’t take me much research to look into IEPI, or what motivates them.
I don’t believe every criticism of unions out there (some are flat-out wrong), but neither am I blinded to IEPI’s obvious bias. Wordsliger is right that sometimes you don’t want the cheapest service/contract out there. That said, our prevailing wage system in Illinois is flat-out broken. Even elected county and state Democrats (one who was actually IN a union) have admitted as much in conversations I’ve had with them.
People can put their head in the sand and ignore it, but our prevailing wage system is broken and raises costs/taxes. It’s that simple. Remove it or reform it.
Comment by Liandro Thursday, Jul 23, 15 @ 11:47 am
Also, in Dixon, it chases small jobs AWAY from local contractors. Paint jobs, small building construction, etc…there are many fantastic contractors operating in the area. Due to prevailing wage triggered even at low amounts, they can’t be considered…and the work goes out of county.
Comment by Liandro Thursday, Jul 23, 15 @ 11:50 am
With Rauners plan, he wants to slash and butcher state workers pay and benefits, and expect to get the same if not better producticity. You get what you pay for, worse so that many skilled workers will go elsewhere and replaced with the people willing to work for low wages.
Comment by Shanks Thursday, Jul 23, 15 @ 11:51 am
No matter how you say it lower wages means less cost for projects and services and more profit for business owners. The losers, of course, are the workers. It is what it is..
Comment by Mouthy Thursday, Jul 23, 15 @ 11:52 am
Report shows membership in unions increasing in Illinois while declining elsewhere. A Michigan study quoted by Rich above indicates prevailing wages increase costs by a minimum of 10 percent or more. According to THAT author eliminating prevailing wage in Michigan would finance a 5 percent decrease in the state income tax.
Cherry picking numbers to support your preset views on a subject is not smart thinking. Just like in Workers Comp, it leads to a false sense of security and just kicks the can filled with problems further down the road.
Comment by Louis G. Atsaves Thursday, Jul 23, 15 @ 11:52 am
I think there’s substancial value in examining public policy in other states, regardless of if it’s tax policy, prevailing wage, or labor policies. Only Illinois is exactly like Illinois, so the value of such comparisons is limited, but such comparisons are still useful. Examining the impact of legislation in other Midwestern states could save us from failed experiments in Illinois.
Comment by AC Thursday, Jul 23, 15 @ 11:55 am
- Louis G Atsaves -
Well said.
Comment by Oswego Willy Thursday, Jul 23, 15 @ 11:55 am
OW- Understood.
My point is not to compare them to Illinois. Remove Chicago from Illinois and the impact to Indiana and Wisconsin would be significant as well. Their economies are a fraction of ours.
I just find the effects of the move to RTW and impact on economic growth interesting when comparing two identical states.
No doubt you cannot compare them to Illinois in that regard demographics or labor/polictical culture.
Comment by JS Mill Thursday, Jul 23, 15 @ 11:58 am
==That’s not mathematically possible.==
If only we applied that standard to every political speech, bill proposal, and budget address.
Comment by walker Thursday, Jul 23, 15 @ 12:00 pm
Glad to see people starting to understand that building things the right way costs money, and building them the wrong way costs more money.
Liandro, that’s pure BS. If everyone has to pay the same wage that becomes a non issue for competitiveness. Your local guys would have an edge on mobilization and demobilization, which can be a huge advantage.
You’re likely following a line of BS from local owners who want to pay less and keep more for themselves. Those types usually have a hard time competing anyway.
Not surprised that someone like you would be fooled.
Comment by Daniel Plainview Thursday, Jul 23, 15 @ 12:01 pm
There is nothing that prevents small contractors from bidding on government projects. What the prevailing wage law says is the contractor must pay their employees the prevailing wage for the classification of work.
If a municipality wants to hire two guys with a paint brush, then the contractor must pay the prevailing wage for a painter. The contractor builds the prevailing wage costs into the bid.
What is broken about the prevailing wage law? BTW there is an equivalent federal prevailing wage law called the Davis-Bacon Act.
Comment by Huh? Thursday, Jul 23, 15 @ 12:04 pm
The folly in this particular turnaround agenda item is assuming that all of these local governments that will be impacted by a real estate tax freeze are spending a great deal of their annual budgets on construction projects that require payment of prevailing wage. While I am strongly in favor of paying skilled construction workers prevailing wage, doing away with it won’t impact the bottom line of most local governments. Many local governments are struggling to make payroll, let alone undertake capital improvement projects. Plus, capital improvement projects are generally funded out of capital funds, not general operating funds. Eliminating prevailing wage requirements aren’t going to help general operating funds.
Comment by Old Shepherd Thursday, Jul 23, 15 @ 12:06 pm
Have talked to many municipal officials re whether the Governor’s prevailing wage and collective bargaining proposals would provide cost savings that would minimize the impacts of a property tax freeze.
On prevailing wage, the consensus is that some savings could be realized for smaller projects (i.e. those less than $250 -$300K). Those are the sized projects finance directors tell me smaller, non-union contractors have the capacity to handle. Examples of this would be HVAC repairs, sidewalk replacement, small road repair projects, minor water main repairs, etc.
Larger contractors tend to be the only bidders on major projects, i.e. street/road repaving and reconstruction, water main replacements, building construction, etc. That’s because they have the personnel and equipment resources to do them.
Larger contractors tend to be union shops. They pay the prevailing wage regardless of any statutory requirements. Local governments do not believe they would realize any cost savings from the Governor’s prevailing wage proposal on the larger capital projects as a result.
As for the collective bargaining issue, municipal officials are of the opinion that they might see some initial savings from the benefit and job-related exclusions in the Governor’s proposal.
However, they point out that the savings will only be realized on the first contract they negotiate after such a law were passed. Once that new contract is enacted, a new baseline will be established. There will likely be no or very little savings from the Governor’s proposed exclusions on future contracts if they are already taken on the initial one.
Comment by GA Watcher Thursday, Jul 23, 15 @ 12:13 pm
@Liandro
IEPI is to trade unions as CTBA is to public sector unions.
Comment by nixit71 Thursday, Jul 23, 15 @ 12:13 pm
The party of business and the wealthy want to pay workers less. What’s so complicated about that? This state, that state, upstate, downstate, etc. It all adds up the same. Less for the worker. All this rabble I’ve been reading is nonsense. Tell it like it is for once..
Comment by Mouthy Thursday, Jul 23, 15 @ 12:27 pm
- JS Mill -,
It’s all good. You know how things mushroom here.
With respect, as always.
Comment by Oswego Willy Thursday, Jul 23, 15 @ 12:41 pm
There is nothing in the prevailing wage law that says only union contractorsquare are allowed to bid on government projects.
Many years ago, I had two IDOT contracts doing the exact type of work. One contractor was non-union and the other was union. By far, the non-union contractor was better organized and delivered a higher quality project. In each case, via certified payrolls, I was able to determine that for a particular labor classification, that the workers were paid the prevailing wage. The dollar amounts of the contractsame were similar. The difference came down to corporate culture.
The non-union shop emphasized a quality work ethic that was not apparent in the union shop.
Do not drag out the small non-union shop as an excuse to eliminate the prevailing wage law.
A good contractor will develop a cost estimate based on the applicable labor costs. If they know they have to pay prevailing wage, the cost will be built into the bid.
Comment by Huh? Thursday, Jul 23, 15 @ 12:49 pm
Rounders dream scenario is we pay him to work….
Comment by illlinifan Thursday, Jul 23, 15 @ 12:59 pm
Ugh auto correct Rauner instead of Rounder…but maybe the computer knew something I didn’t
Comment by illlinifan Thursday, Jul 23, 15 @ 12:59 pm
Illinifan - We are already paying him to do his job. He gets a pay check just like any other state employee. The problem is that he has enough money that he doesn’t care about the meager pitance he gets from the state.
Comment by Huh? Thursday, Jul 23, 15 @ 1:08 pm
“You’re likely following a line of BS from local owners who want to pay less and keep more for themselves.”
Except that if they charge the city less, then it is actually the city keeping more for its taxpayers.
“Not surprised that someone like you would be fooled.”
Sigh.
“There is nothing that prevents small contractors from bidding on government projects.”
Right, except that no Dixon painter near the inflated prevailing wage rate–which functionally removes them from the process. And that’s ignoring the pressure put on by unions (rats, calls, visits, etc.) to punish anyone who uses non-union.
“What is broken about the prevailing wage law?”
In rural areas, start with the issue of prevailing wage often being way off-base with what private rates are. As I generally make clear: I don’t speak on Chicago’s economy.
“Many years ago, I had two IDOT contracts doing the exact type of work.”
I’m not sure how this is relevant. Anyone pre-certified by IDOT already is structured to handle prevailing wage. Local rural contractors are not. Some of them put out very good service/product at lower rates; some don’t.
Comment by Liandro Thursday, Jul 23, 15 @ 1:21 pm
The non-union shop emphasized a quality work ethic that was not apparent in the union shop.-Huh?
HaHaHaHa!… thanks for the chuckle!…Your $tuffing is $howing!
Comment by Anonymous Redux Thursday, Jul 23, 15 @ 1:45 pm
No matter what bias you want to project on any source, these numbers don’t lie:
If labor costs average 20-30 percent of total project costs, you cannot credibly claim that relief from prevailing wage laws will save you 20 percent of total costs.
The arguments over whether you save anything, or whether it’s a good thing to do, are separate arguments.
If only people would do the simple arithmetic before making broad claims. On all sides.
Comment by walker Thursday, Jul 23, 15 @ 1:48 pm
The shovel may be the idiot stick, but apparently there’s a difference if you actually let an idiot use it.
Comment by Anon Thursday, Jul 23, 15 @ 2:00 pm
I don’t know how to explain this to you any other way, Liandro, but if everyone has to pay the same prevailing wage that takes the issue out of the competitive portion of the bid. That is a complete non-issue relative to local vs. outside contractors.
While lower wages on paper show up as lower project costs, that’s not how construction works. Lower wages usually mean more turnover, less training, and less dedicated employees. And unlike making sandwiches, those issues can drastically alter to quality of the final product.
But by all means, keep spouting your Econ 101 talking points.
Comment by Daniel Plainview Thursday, Jul 23, 15 @ 2:04 pm
“If labor costs average 20-30 percent of total project costs, you cannot credibly claim that relief from prevailing wage laws will save you 20 percent of total costs.”
Partially agreed, although this completely depends on the job. Many projects are massively tilted towards labor costs, especially maintenance/repair work. Some are not.
For example, I recently reviewed estimates of city streets that are estimated around $600,000 to put in sewer. We know pretty well what the material costs are, and it’s under 50% of the total project.
Let’s say my city is doing over $5M in projects this year (easily true). Let’s say 25% of that is labor costs affected by prevailing wage, which comes to $1.25M. If that number is merely 20% higher due to prevailing wage, that costs the city $250,000.
Total motor fuel tax revenue was roughly $450,000. Even subtracting out some gains to allow for higher wages to ensure quality work (training purposes, etc.) we could have done 50% more road resurfacing this year. Those workers still would have made far above the median household income in our rural area–the ones who pay for all the services in the first place.
Will removing/reforming prevailing wage save 20% of total costs? Only on specific projects; overall I can’t imagine it would be close to that. But if it saves 5% (to throw out a number) every year, that means a lot more infrastructure is getting done with the same resources.
Comment by Liandro Thursday, Jul 23, 15 @ 2:07 pm
- Those workers still would have made far above the median household income in our rural area -
Yet another example of your misunderstanding.
Construction workers aren’t guaranteed minimum hours, not by their unions nor their employers.
Maybe by your second term as mayor someone can explain to you that you can’t apply asphalt in cold weather. The plants that make it don’t even run.
So if you’re a road builder in Illinois, you don’t work for a few months out of the year. That’s just one example of many.
Comparing hourly construction wages with average annual income is not apples to apples.
Also, again, on paper you think you’re saving the city money, in reality you won’t be.
Comment by Daniel Plainview Thursday, Jul 23, 15 @ 2:15 pm
DP: Perhaps the difficulty is for the small business, not for the Village. A small contractor might not be able to get away with having some employees paid at one rate, and others at another, depending on the job. Or the same worker paid one rate on one job, and another rate on another. That problem is what keeps that business from competing for public jobs.
Comment by walker Thursday, Jul 23, 15 @ 2:22 pm
walker, I know small contractors that do it all the time, especially in rural Illinois.
Comment by Daniel Plainview Thursday, Jul 23, 15 @ 2:24 pm
With all the talk of saving the taxpayers money w elimination of prevailing wage and collective bargaining, I am yet to read in any article anywhere, that the union employees, public or private are Illinos taxpayers also…
Comment by TR Thursday, Jul 23, 15 @ 2:26 pm
“Comparing hourly construction wages with average annual income is not apples to apples.”
Indeed. I know construction workers who go on unemployment during the winter, or ones that plow and do other services during the winter. I know teachers that do construction summer-only, etc.
You obviously have concluded on some deep level that I don’t know any of this, and that is completely wrong. You’re fixated on me, instead of the issues. The market doesn’t care about me or you, though–it is what it is.
I respect your basis of knowledge, even though I have no idea who you are or what your background is. You have repeatedly gone out of your way to disrespect mine, in an attempt to weaken my core arguments. We might as well end the discussion there, because I refuse to answer in kind.
Comment by Liandro Thursday, Jul 23, 15 @ 2:52 pm
Spare me your holier than thou attitude, Liandro. I don’t assume anything, you demonstrate it.
Comment by Daniel Plainview Thursday, Jul 23, 15 @ 4:17 pm
Liandro - Let’s say my city is doing over $5M in projects this year (easily true). Let’s say 25% of that is labor costs affected by prevailing wage, which comes to $1.25M. If that number is merely 20% higher due to prevailing wage, that costs the city $250,000.
Total motor fuel tax revenue was roughly $450,000. Even subtracting out some gains to allow for higher wages to ensure quality work (training purposes, etc.) we could have done 50% more road resurfacing this year.
Do the math Liandro, you couldn’t have done 50% more road resurfacing with your example.
Comment by Chicago 20 Thursday, Jul 23, 15 @ 4:29 pm
Are other items on Rauner’s agenda subject to the same type of inflation to justify their passage? Each of his turn around items should be given the fine tooth comb by the legislature. Rauner’s urgency to get all of it passed in such a limited time leads one to suspect he was attempting to pull a fast one, creating fault heavy legislation that would have required considerable amending due to negative impacts if any of it had passed. Rauner simply did not have his act together and is pushing blame for the fallout of his own making on to others.
Comment by vole Thursday, Jul 23, 15 @ 4:39 pm
“A small contractor might not be able to get away with having some employees paid at one rate, and others at another” Why not? If it’s a small contractor, talk with the employees and say “Hey, some of these jobs pay better than others. One the ones that do, I’ll pass that along to you.” I’d be shocked if anyone said, “No, please don’t, we want to be paid the same no matter what we do.”
Comment by Skeptic Thursday, Jul 23, 15 @ 4:41 pm
I suspect that greater cost savings could be achieved by scrutinizing the percentages of profit taking among the contractors and subcontractors. Is there real competition among the contractors for many of these government let jobs? I suspect not.
Comment by vole Thursday, Jul 23, 15 @ 5:09 pm
“Do the math Liandro, you couldn’t have done 50% more road resurfacing with your example.”
$250,000+$450,000=$700,000, which is 155% of the the original $450,000 MFT number. What percentage are you coming up with?
Comment by Liandro Thursday, Jul 23, 15 @ 5:32 pm
- Skeptic - Thursday, Jul 23, 15 @ 4:41 pm:
“A small contractor might not be able to get away with having some employees paid at one rate, and others at another” Why not? If it’s a small contractor, talk with the employees and say “Hey, some of these jobs pay better than others. One the ones that do, I’ll pass that along to you.” I’d be shocked if anyone said, “No, please don’t, we want to be paid the same no matter what we do.”
At that point, aren’t we just admitting that the exact same firm, and same employees, are artificially increasing rates over their normal rates. Isn’t that simply bilking more money out of the local taxpayers?
Comment by Liandro Thursday, Jul 23, 15 @ 5:35 pm
The union vs non-union implications is means reducing prevailing wages causes worse results.
The bigger issue (which I described in another article) is the LOST state revenues!
As indicated above lets use 25% as the wage differential between having and not having prevailing wages.
So with $100m in projects the difference in WAGES PAID is $25 million. That will be true whether 1 or 1000 projects since the 25% reduction in wages paid will be the only difference. That means (if all workers live in IL) $25m * 3.75 = $937.5K in LOST income taxes additionally those IL residents pay around 7% sales tax on say half of their income which is another loss in state revenue of $875K.
There is no ifs or buts around the mathematical LOSS in state revenue. Doing 1000 projects instead of 100 DOES NOT change the loss.
Comment by IL17Progressive Thursday, Jul 23, 15 @ 5:37 pm
-Liandro-
“Do the math Liandro, you couldn’t have done 50% more road resurfacing with your example.”
Liandro you started with a $5 million project, plus your $250,000 is $5.25 million or 5% more, not 50%.
If the MFT amount that you gave was for a month, it would take 11.11 months to pay for the $5 million project and 11.66 months to pay for the $5,250,000 project.
But it’s all a moot point anyway since 6 universities analyzed before and after effects of prevailing wage laws and found NO taxpayer savings.
Comment by Chicago 20 Thursday, Jul 23, 15 @ 5:43 pm
- IL17Progressive -
Good point, here is a study using real numbers.
http://cas.umkc.edu/economics/resources/prevailingwagestudy.pdf
Executive Summary
The attempts to repeal the prevailing wage law in Missouri are based upon the
claim that repeal with save dollars on total construction costs and will bolster state and
local budgets. In 2004, we conducted an in depth study of the impact of the repeal of the prevailing wage in Missouri. In 2004, we showed that the repeal of the prevailing wage statue in Missouri would not save dollars on construction costs but rather would result in a negative impact on families, taxpayers, and the state and regional economics in Missouri. Utilizing data from the F.W. Dodge Company on construction costs in the
North Central States region, we update our previous report for the period 2003-2010 on
the impact of the prevailing wage statute in Missouri. Our update of 2011 has shown that Missouri’s prevailing wage laws do not raise the cost of construction. Our examination of both the short and long-term effects of prevailing wage show positive and substantial impacts on construction workers, their families, other industry participants and their families, and state, county, and local revenue streams.
1. Opponents of the prevailing wage statute argue that the repeal of the prevailing
wage statute would save dollars on construction costs and would bolster state,
local, and county revenue streams.
Study Finding #1
The repeal of the prevailing wage statute would cost the residents of Missouri
and their families between $300.3 million and $452.4 million annually in lost
income.
The repeal of the prevailing wage statute would cost the State of Missouri
between $5.8 million and $8.7 million annually in lost sales tax collections.
The repeal of the prevailing wage statute would cost the State of Missouri
between $18.0 million and $27.1 million annually in lost income tax revenues.
The total economic loss due to the repeal of the prevailing wage law in
Missouri would be a loss of income and revenue between $324.1 million and
$488.2 million annually.
2. Opponents of prevailing wage statutes argue that prevailing wage laws increase
the costs of public construction due to the impact of higher wage rates on total
construction costs. Repeal opponents argue that the increased costs to states as a
result of prevailing wage statues ranges from 10%-30% of total construction
costs.
Study Finding #2
The F.W. Dodge Company provided us with the bid price on 150,482
observations for the period 2003-2010 in the twelve states North Central
States Region across thirteen different structures.
In the North Central States Region, there are eight prevailing wage states
and four non-prevailing wage states.
For the period 2003-2010, the mean square foot costs of construction in
prevailing wage states was $150.37; for non-prevailing wage states, the
mean square foot costs of construction was higher at $160.11. There is no
statistical difference in the mean square foots costs of construction.
The costs of public construction are higher that the costs of private
construction in both prevailing wage states and non-prevailing wage
states.
There is no statistical difference in the mean square foot costs of public
construction in prevailing and non-prevailing wage states.
Given that labor costs account for approximately 25% of total construction
costs and have been decreasing over time, the claim of 15%-30% savings
with the repeal of the prevailing wage statute is not possible.
Comment by Chicago 20 Thursday, Jul 23, 15 @ 5:48 pm
“Liandro you started with a $5 million project, plus your $250,000 is $5.25 million or 5% more, not 50%.”
Perhaps I made it more confusing by including the MFT funds.
The $5 million included all prevailing wage labor. If labor is 25% of the project, labor costs come to $1.25 million (which seems low, frankly).
If 20% of that $1.25 million in labor was the cost of prevailing wage increases, that means the government spent an extra $250,000 due to prevailing wage–which instead could have been used on other projects. It also could have not been taxed in the first place, but given most budget situations (and aging infrastructure) that is not likely.
I compared that savings of $250,000 to the grand total of MFT in the city, which is roughly $450,000 (all of which was spent on resurfacing city roads). My point was that the savings from the $5 million could have boosted this year’s MFT resurfacing by 50%–but really it could have been used on any city project.
Comment by Liandro Thursday, Jul 23, 15 @ 6:01 pm
“Good point, here is a study using real numbers.”
To be fair, you should point out that the study was paid for by unions…
Comment by Liandro Thursday, Jul 23, 15 @ 6:05 pm
- Liandro -
No Liandro, you confused yourself.
You added what you said was the additional cost of paying the prevailing wage to the amount of the motor fuel tax (revenue)instead of adding the amount to the project cost(expense).
On top of that the University of Missouri Kansas City compared 150,482 bids on public projects over an eight year period and determined that there was NO statistical difference between prevailing wage project and non-prevailing wage projects.
That said the 25% that you are adding to the project has been proven by the University of Missouri Kansas City to be incorrect.
The correct number to add to the project cost for paying the prevailing wage is ZERO.
Comment by Chicago 20 Thursday, Jul 23, 15 @ 6:21 pm
Chicago 20, the $5 million already includes the cost of labor. Why on earth would I add it in again? The ONLY purposes of MFT was to give a sense of scale for how big that $250,000 savings would be.
The entire year of MFT revenue was $450,000. Completely irrelevant, except, again, to give a sense of scale for how much savings $250,000 is.
As for the union study…I get it. They pay for studies that show the costs of prevailing wage are somehow free. You take that as gospel; I sense the study starts with a conclusion and goes from there. We’ll have to disagree on the value of such studies.
Comment by Liandro Thursday, Jul 23, 15 @ 6:48 pm
Liandro,
What I believe is at issue is what is the percentage gain of purported savings. Chicago 20 correctly pointed out that using your numbers (which he disputes are an accurate representation of true savings) the gain from non-union labor would be 5%.
The 50% increase you are forwarding “may” be true in your isolated example, but such a number is a result of adding your purported savings into another logically unrelated fiscal bucket (e.g. the MFT).
Thus, the 50% is a rather misleading number when it comes to examples outside of your particular example. Viz. If Chicago 20 had a situation where his MFT was $4,500,000 not $450,000 then you would only have a 5% increase.
You see the percentage is a result of the MFT base- it is not irrelevant.
As to the larger Union Study issue, well, numbers are numbers- not conclusions in disguise- unlike the MFT.
Comment by Ipso facto Thursday, Jul 23, 15 @ 10:30 pm