Prevailing wage: myth vs. reality
Governor Malloy has made a recommendation to raise the threshold as to when our state's prevailing wage law is triggered on public works construction projects. Connecticut currently has the second highest thresholds in the country, and the highest in New England.
To those who don't work in the construction industry, this controversial political topic seems wonky and confusing. But here's how it works: Connecticut's current threshold is $400,000 for new construction and $100,000 for renovation. That means that the prevailing wage law is triggered when public project costs those amounts. If a project falls below those thresholds, then workers only have to be paid the minimum wage. When Gov. Malloy proposes an increase to the threshold, he is proposing that more workers be paid the minimum wage rather than the family-sustaining prevailing wage.
The truth is this proposal won't in any way alter our state's budgetary woes. In fact, it will do just the opposite: eliminate the kind of fair-paying, middle-class jobs that we should try to keep and grow in our state.
One of the biggest takeaways from November's election is that working families throughout Connecticut are frustrated with stagnant wages and a stagnant economy. Yet, instead of investing in job growth, the governor and some legislators have contended that middle-class wages, including prevailing wages, are too high. But before the public is again sold this recurring bill of goods, let's break down some of their arguments.
Myth: The Connecticut prevailing wage artificially inflates the cost of public construction.
Reality: Opponents argue that the state and municipalities could save up to 30% if there was no prevailing wage requirement. That is not true. Labor costs account for only 23% of total construction costs. In order to achieve these kinds of savings, construction workers on public projects would have to work for free. The opponents of prevailing wage use smoke-and-mirrors arithmetic to make their case.
Myth: But we could build more schools if we didn't have to pay workers the prevailing wage rate.
Reality: A 2002 peer-reviewed study of 4,000 new schools built nationally found that there was no statistically significant effect of prevailing wage requirements on construction costs (Source: "Making hay when it rains: The effect prevailing wage regulations, scale economies, seasonal, cyclical and local business patterns have on school construction costs," Hamid Azari-Rad, Peter Philips and Mark Prus, in the Journal of Education Finance). Further, the extensive body of peer-reviewed research conducted over the last 15 years finds that repealing or weakening prevailing wage laws will not save taxpayer dollars by reducing overall school construction costs, nor will repeal free up additional budget resources to build more schools.
Myth: The prevailing wage rates are simply the unions' rates.
Reality: Prevailing wages are based on surveys conducted by the U.S. Department of Labor of what local contractors actually pay workers on public works projects in the state. Prevailing wages are therefore set by local construction market conditions. This is the free market at work. It is also worth noting that there is a misconception that prevailing wages somehow only benefit union workers or union companies. That is not true. Non-union contractors also perform work on publicly funded projects. And all construction workers, regardless of union affiliation, benefit from the prevailing wage law.
Myth: Eliminating the prevailing wage mandate would help Connecticut's economy.
Reality: Two professors of economics at the University of Utah, Peter Phillips and Cihan Bilingsoy, conducted a study in 2010 entitled "Impact of prevailing wages on the economy and communities of Connecticut," which found that repeal of the prevailing wage law would result in the loss of $21.6 million in income tax revenue. Other studies have shown that every dollar spent on a prevailing wage project generates a $1.50 in economic activity — that's money spent at local businesses such as restaurants and auto body shops. Prevailing wages keep workers off public assistance and allow them to contribute to our local economies — which is a good investment for our state. Further, there is already a shortage of skilled tradespeople in the construction industry. Recruitment and retention of construction workers will become more challenging if governments continue to lower their wages.
Given the state's budgetary challenges, it is no surprise that the administration and legislature are seeking cost-saving measures to spur our economy. But balancing the budget on the backs of our hard-working men and women in the construction industry will do more harm than good. We must protect and strengthen our state's prevailing wage law.
Kimberly Glassman is the director of the Foundation for Fair Contracting of Connecticut.