News Story

How Michigan’s Prevailing Wage Law Raises Costs

Schools, other government entities are forced to pay prices that have little to do with reality

In rural Dickinson County, located in the Upper Peninsula on the Michigan-Wisconsin border, the cost of living is low and the median household income is about $44,000.

Steve Zurcher, the owner of St. George Glass & Window located in Iron Mountain, pays his glaziers about $20 per hour. That’s the market wage for qualified glass-installers in the area.

But the State of Michigan doesn’t care about market or privately-negotiated wages. Because of the state’s “prevailing wage” law, any glazier in Dickinson County who works on a taxpayer-funded construction project is mandated to be paid $43.53 per hour.

Prevailing wage laws force government and publicly-funded entities to pay a set minimum wage for workers based on union contracts when contracting for construction work. In Michigan, this minimum construction wage is mostly arbitrary, not taking into consideration private-sector wages or the cost of living in an area. For example, the mandated minimum for glaziers in Livingston County – the wealthiest county in the state with a household income of over $72,000 – is $47.35. That's only a few dollars more per hour than the state’s mandate in the U.P., despite large cost-of-living differences.

This means, for the majority of construction projects for local schools, Zurcher’s company isn’t allowed to pay his employees their privately-negotiated wages. Instead, the state forces an inflated minimum hourly wage of over $43. That doubling of labor costs comes from the school’s budget, and ultimately from taxpayers. This also causes other negative effects, like fewer workers on projects.

“I believe prevailing wage has not benefited the taxpayers of Michigan,” said Zurcher, who has done work on hundreds of taxpayer-funded projects. “It artificially increases construction costs, reduces price competition, promotes interest from contractors outside our state, interferes with the labor agreements of private businesses, creates a disincentive to complete projects in a timely fashion, and creates unfairness in compensation between long-time employees and new hires.”

In September of 2014, Zurcher won a bid to do work for a new welcome center at Michigan Technological University. His base bid for the work was $84,000 with labor costs totaling $23,636 of that. But the cost was inflated because of the state’s prevailing wage law. Without the law, the university would have paid $72,504 for the project with labor costs totaling $12,139. Michigan Capitol Confidential examined documents verifying this information.

Extrapolating that savings to every government-funded construction project in Michigan adds up. A 2013 study from the Anderson Economic Group found that the law costs school districts about $224 million annually in mandated extra costs. But it’s not just schools: State and local government projects are also subject to the mandate, limiting their negotiating power when seeking bids.

Zurcher said the prevailing wage law harms one of his main competitive advantages: Price. When the state mandates a wage far above market value, larger and non-local shops often gain an advantage. That's because it makes more sense for a large company out of an area to bid and work on projects in which Zurcher’s labor costs are inflated to their levels.

“Wisconsin glazing contractors see prevailing wage as an essential benefit and affords them the means to be able to bid on projects in the U.P.,” said Zurcher. “It forces me to elevate my labor costs to their level which removes a major and key competitive edge we would normally have. Any supposed benefit the community and my employees might gain from the increased hourly pay is just as easily lost to competition from businesses outside our community.”

As a principled fiscal conservative, Zurcher is opposed to the government interfering with labor contracts, even if that mandate sometimes benefits his company.

“Prevailing wage only serves to support special interest groups who use their power and influence to create their own special minimum wage standards,” Zurcher said. “The Legislature should repeal the law and end the cronyism.”

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.