Commentary: It's Time to Repeal Prevailing Wage Law

(Editor's Note: This article first appeared in the Detroit Free Press on Jan. 8, 2012.)

During the past 11 months, the Michigan Legislature and Gov. Rick Snyder have gone to great lengths to economize, taking considerable political risks to make tax dollars stretch further at the state level, in counties, municipalities and schools. But a major policy reform that would restore fairness and save taxpayer money has been overlooked. The state's prevailing wage law is ripe for repeal.

The prevailing wage law requires that every time state money is used on a construction project (or even when the state guarantees bonds, which frequently happens on school construction projects), all workers must receive a compensation that is based on union wages and benefits.

This "prevailing" wage is actually a premium wage that applies only to about a fifth of Michigan's construction workforce, according to the Union Membership and Coverage Database. We conservatively estimate that the prevailing wage law adds $200 million annually to the cost of government construction projects in Michigan.

That's $200 million that the state spends artificially boosting wages for workers who already receive above-average compensation in the marketplace.

According to the Bureau of Labor Statistics, the median hourly wage for all workers in 2010 in Michigan was $16.26, but for workers in the construction and extraction category, the median wage was $20.97 per hour -- $4.71 an hour higher. Nearly all of this is private construction that does not adhere to a prevailing wage.

Brick masons made $26.37 an hour, electricians made $26.86 an hour, and plumbers made $28.15 an hour. Again, most of this is private construction, and nearly 80% of this workforce is not unionized, according to the Union Membership and Coverage Database. If there's a field where government protection of wages is necessary, it's probably not construction.

By requiring contractors to conform to union pay scales, the state is effectively demanding that whenever construction companies build schools or bridges for the use of the general public, they pay their already well-compensated workforces an extra 50% in wages. This adds at least 10% to the total cost of construction, and therefore the overall cost of government. This is money that cannot be used for teachers, cops or actual construction.

Repeal of the prevailing wage would free up $200 million that can be spent on preserving essential government services or returned to the economy through tax cuts, where it could be used to create jobs -- or both -- without sacrificing a single construction project or skimping on quality.

The prevailing wage law also creates headaches for contractors. Employers have to be ready to meet union job classifications and work rules, which aren't always spelled out by the unions or state government.

Finally, and perhaps most galling, it isn't always clear that unionized construction workers receive the pay and benefits required by the prevailing wage law. The state historically has not examined union contractors to verify that their workers receive the compensation that union officials claim in state surveys to determine the prevailing wage.

In effect, we are relying on the honor system for a policy that costs Michigan taxpayers $200 million a year.

The prevailing wage law is little more than a payoff to union contractors, an expensive payoff that taxpayers cannot afford. With government struggling to pay its already overwhelming bills, the time has come to repeal the prevailing wage law.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.