Do the math: Rauner’s call for repeal of prevailing wage law doesn’t add up

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Photo by Grace Donnelly

Illinois residents are starting to feel the pain from the state’s budget stalemate, as Governor Rauner continues to insist that his anti-union “turnaround agenda” be part of any budget solution.

As part of that agenda, Rauner has called for repeal of the state’s prevailing wage law, which requires that state-funded public construction projects pay wages comparable to average rates in a region. In his state of the state address, he argued that the prevailing wage law increases the cost of construction by 20 percent and raises school construction costs by $160 million a year.

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.

Indeed, studies of school construction costs in Ohio, Michigan, Kentucky and Pennsylvania have shown that reducing wages by eliminating or adjusting the prevailing wage has no effect on construction costs.

How can that be?

Manzo said evidence shows that while wages go down 8 to 13 percent without the prevailing wage, productivity decreases between 11 and 14 percent. Contractors paying higher wages hire more skilled labor and use more large equipment, he said. They also save on material and fuel costs.

The alternative is “a low-wage, low-skill, low-quality system,” Manzo said. He tells of an Illinois contractor who took a job in Florida. As the contractor told him, “he does a job in Illinois, the workers show up in hardhats, with tools, properly equipped, properly trained and ready to go. In Florida, he tries to hire local labor, they show up in flip-flops, no hardhat, they’re carrying a hammer, they don’t know what they’re doing. He told me he had to bring workers in from Illinois.”

One study of the industry in Colorado showed no difference in the size of bids for federal projects covered by the prevailing wage and comparable state projects that weren’t covered. To Manzo, this suggests that contractors are simply increasing their profit margins when they’re allowed to pay lower wages.

Another thing—injury and fatality rates are significantly higher in states without a prevailing wage. If Illinois had the safety record of low-wage states, he says, there’d be at least seven more construction fatalities a year (there were 27 in 2010).

It’s wrong to think of it in these terms, but for Governor Rauner’s benefit: injuries and fatalities reduce productivity, damage equipment and cause construction delays.

And while Rauner argues that lower wages would boost the state’s economy by increasing competitiveness, Manzo argues that the opposite is true. Lost wages and reduced consumer demand—as well as lost work, as low-wage contractors come in from out of state—would cut the state’s GDP by over $1 billion if the prevailing wage was eliminated, he estimates.

And cutting workers’ wages would reduce state tax revenues by $44 million, he says. One study shows that construction workers earning the prevailing wage pay more than twice as much in income and property taxes as those who don’t.

Based on the history of exclusion of African Americans from building trade unions, some opponents of the prevailing wage argue that it increases discrimination. Manzo says outreach efforts need to be stepped up. (That’s happening in some unions, but much more needs to be done.) But he points to recent research showing no relationship between prevailing wage laws and African American participation in construction employment, and new studies indicating that prevailing wage laws may in some cases increase the proportion of African Americans in construction jobs.

A similar argument is made against raising the minimum wage by opponents who say it would reduce employment for people of color.  And when the same politicians attacking the prevailing wage are also going after public sector jobs and unions—where blacks are heavily represented—their  concern over racial parity rings hollow.

The prevailing wage issue is “part of a broader debate about what kind of state we want to live in,” said Manzo.  “Do we want an economy that pays workers enough to support a family?”

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.

“It’s part of the playbook of reducing workers’ influence and reducing workers’ share of the economic pie.”