Prevailing Wage

What is Prevailing Wage?

Prevailing Wages are the actual hourly wages, benefits and overtime to be paid to workers, as calculated by the U.S. Department of Labor and either the Ohio Department of Labor; the Michigan Department of Labor and Economic Opportunity; or The Pennsylvania Department of Labor and Industry, through the Bureau of Labor Law Compliance for construction trades.

The states of Indiana and Kentucky do not have Prevailing Wage legislation.

Prevailing Wage laws require construction contractors who work on publicly funded projects to pay construction workers at least the prevailing wages and benefits in the area in which they are working.

Construction projects that receive federal funding are subject to a federal Prevailing Wage law known as the Davis-Bacon Act.

Enacted by Congress on March 3, 1931, the Davis-Bacon Act ensures local workers receive a fair wage and provides local contractors a fair opportunity to compete for federal government contracts. Under the provisions of the Davis-Bacon Act, contractors or their subcontractors are to pay workers employed directly upon the site of the work no less than the local Prevailing Wages and fringe benefits paid on similar projects.

The advantages of Prevailing Wage

Prevailing Wage laws prevent building contractors from undercutting workers’ wages and benefits and to help reinforce the local economy.

Extensive research has consistently shown Prevailing Wage laws benefit all building-trades industry workers, construction project owners and the public in general.

Data regularly demonstrates that these laws do not result in significant cost variations on construction projects and, in fact, result in savings due to better investment in the workforce and the resultant higher-quality construction.

Prevailing Wage laws keep overrun costs low and quality high through utilizing a workforce that is paid properly to do the job right the first time.

The Midwest Economic Policy Institute published a study in 2017 focusing on Ohio’s Prevailing Wage law. “The Economic, Fiscal, and Social Effects of Ohio’s Prevailing Wage Law” showed Ohio’s law benefited the state and its residents.

According to the report, Ohio’s Prevailing Wage law did not increase construction costs because the cost of construction labor accounts for less than 25 percent of the total construction price tag.

Instead, the law provided Ohio residents with the opportunity to earn good-paying jobs and keep Ohio’s taxpayers dollars in the Buckeye State. It showed the law benefits the state, as the union construction industry plays a significant role in the state’s economy.

The study found that repealing or weakening Prevailing Wage in Ohio would:

  • Lead to fewer apprentices and a smaller construction workforce
  • Lower the income of construction workers by 16 percent
    • For approximately 16,000 workers, the wage cut would be so significant, they would fall below the official poverty line, qualifying them for Supplemental Nutrition Assistance Program (SNAP) government benefits
  • Reduce employer-provided health insurance coverage by 2 percent 
  • Decrease employer-provided pension coverage by 10 percent
  • Force thousands of construction workers who were previously self-sufficient to rely on public insurance programs
  • Result in 4,100 veterans separating from their construction jobs
  • Reduce the total income of all veterans employed in construction jobs by $275 million 
  • Force 3,900 veterans to lose their employer-provided health coverage 
  • Lower the number of veteran-owned construction companies would 
  • Result in a $725 million net loss of construction business 
    • This loss of construction business and spending would ripple throughout Ohio’s economy and reduce economic activity by approximately $1.4 billion 
    • The corresponding total employment loss would be 9,700 jobs – including 5,500 construction jobs and 4,200 jobs in other industries, such as retail, service, and restaurants. The reduction in economic activity is associated with an approximate $45 million decrease in state and local tax revenue

What happens when Prevailing Wage is repealed?

A 2019 study conducted by researchers at the University of Missouri-Kansas City and the MEPI titled “The Impact of Repealing West Virginia’s Prevailing Wage Law: Economic Effects on the Construction Industry and Fiscal Effects on School Construction Costs” found the repeal of West Virginia’s Prevailing Wage law hurt state residents, lowered the quality of construction and had no statistically significant effect on construction costs.

The study looked at school projects during the first two years the law was repealed and found a 19.5 percent decrease in the number of new apprentices, hourly wages growing slower when compared to neighboring states with Prevailing Wage and a 16.9 percent increase in construction and extraction worker injury rate.

The report revealed a majority of the winning bids on the school projects were from out-of-state, non-union contractors. Instead of local construction workers building the schools, West Virginia taxpayer dollars were going to out-of-state construction workers, who took the money back to their home state once the work was finished. Furthermore, the vast majority of projects were not finished on time and the projects were plagued by shoddy construction work, which often pushed the projects well over their estimated budget.

A 2020 study by MEPI titled “The Effects of Repealing Prevailing Wage in Wisconsin: Impacts on Ten Construction Market Outcomes,” revealed similar issues in Wisconsin.

Specifically, the report examined the per-mile cost of state highway projects both before and after the 2017 repeal of Wisconsin’s Prevailing Wage law. The data shows that the inflation-adjusted per-mile highway cost has increased by $52,000 following repeal of Prevailing Wage. Highway projects that did not receive any federal support were also more expensive per mile after its repeal.

The data showed inflation-adjusted Wisconsin construction worker income declined by over 6 percent (more than $2,600 per year), and their likelihood of being covered by an employer-provided health insurance plan shrank by 4 percent after repeal.

According to research data from the Wisconsin Department of Transportation, the number of highway construction projects awarded to firms from out-of-state has exploded by 60 percent since the repeal, with tens of millions of dollars that would have otherwise been invested in workers and businesses inside the Badger State going elsewhere. Overall bid competition shrank by 16 percent.

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