Blog Posts > Clarifying Prevailing Wage Savings ‘Estimates’
August 31, 2016

Clarifying Prevailing Wage Savings ‘Estimates’

The State Journal – A recent guest column from Bryan Hoylman of the Associated Builders and Contractors of West Virginia and Jason Huffman of the West Virginia chapter of Americans for Prosperity made the claim that the repeal of the state’s prevailing wage law has saved the state $20 million in just two months. This claim deserves a closer look. Read

The authors calculated the purported savings by assuming the prevailing wage inflated public construction costs by 25 percent, and that its repeal would result in a 25 percent savings. As the authors note, the 25 percent inflation assumption is borrowed from the Anderson Economic Group. According to their reports on the prevailing wage, the Anderson Economic Group came to the 25 percent figure based on their “professional judgment” of existing prevailing wage research, not any research or data of their own.

But according to the studies cited by the Anderson Economic Group, only one shows results close to their 25 percent figure. The Anderson Economic Group analysis relies on a 1984 study which shows prevailing wage was inflating public construction costs by 26.1 percent. But, as even Anderson Economic Group admits, the authors of that study acknowledged the figure was too high, as labor costs as a whole are only roughly one-third of total construction costs.

The 1984 study compared federal projects with private construction. However, later research has found that public construction is up to one-third more expensive than private construction, with or without the effects of the prevailing wage. In fact, when the 1984 study was replicated, this time comparing public projects with prevailing wage to public projects without prevailing wage, there was no difference in costs; subsequent studies have repeatedly found the same results. The 25 percent figure simply reflects the differences between public and private construction, and therefore is not appropriate to calculate the savings from prevailing wage.

Government contracts are not bid on in a free market, with or without the prevailing wage. With prevailing wage, contractors compete for bids based on skill, productivity and experience. Without it, contractors can bid on who receives public funding based on who can provide the cheapest labor. Neither scenario describes a free market, but research has shown repeal does lead to lower wages, lower health and pension coverage and a less experienced and productive workforce. If prevailing wage’s repeal is supposed to save the state hundreds of millions of dollars like advocates of repeal claim, then the workers it affects and taxpayers deserve an honest accounting of the evidence.

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