The Mackinac Center for Public Policy recently published a study evaluating the effects of state prevailing wage policy on road construction and maintenance costs. Prevailing wage requirements undermine nonunion contractors’ competitiveness for public works contracts by standardizing the payment of union wage rates via methodologically defective surveys.
Authored by Michael J. Hicks, the George and Francis Ball Distinguished Professor of Economics at Ball State University, the May 2023 study associates state prevailing wage laws with significant road construction and maintenance cost increases and no significant effect on the labor share of those costs. The findings on road spending add to the extensive literature detailing prevailing wage cost increases, primarily on school construction.
Using public data on state road construction spending in 48 states from 2004 to 2019, Hicks developed a model that demonstrates an 8.9% to 14.3% cost increase on projects where prevailing wage applied. Secondary research on road building in six states that have repealed prevailing wage laws since 2014 showed an average cost reduction of 5.6%. Because the secondary prevailing wage repeal model necessarily employed a smaller sample of states, its results do not constitute a comprehensive cost estimate given significant annual variation in road spending.
The Mackinac Center study confirms overwhelming evidence from academic and government investigators of the wasteful and exclusionary impacts of prevailing wage requirements. A 1999 Mackinac study found a federal court’s suspension of Michigan’s prevailing wage law created at least 11,000 additional construction jobs and $275 million in taxpayer savings between 1994 and 1997 alone.
A 2017 Mackinac study found restoration of Michigan’s prevailing wage requirements would transfer about $230 million annually from Michigan taxpayers to unionized workers, and confirmed existing findings from diverse investigators that prevailing wage requirements increase public construction costs by up to 15%.
ABC will continue to vigorously oppose federal, state and local legislative and regulatory prevailing wage expansion, including Michigan Gov. Gretchen Whitmer’s March 24 signature of H.B. 4007, which codifies prevailing wage for state contracting in contravention of a 2018 public referendum.