Part Two of a Three-part Series on Prevailing Wage. Read Part 1.
The overwhelming weight of evidence based on the actual cost of public construction projects shows that prevailing wage laws do not raise costs. Therefore, advocates of repealing the law in Pennsylvania ignore this evidence. Instead of “evidence-based policy,” we have “lack-of-evidence-based policy.” Go figure.
Repeal advocates use a hypothetical calculation that makes assumptions about cost, rather than empirically examining the relationship between higher wages and total construction costs. (As discussed here, even these hypothetical cost estimates don’t make sense once you apply real world data to how much labor costs represent of total construction cost.)
Another key ingredient in the hypothetical calculations used by proponents of repeal is the claim made most recently by the Pennsylvania State Association of Boroughs (PSAB) that “the prevailing wage is 30 percent to 60 percent higher than the average wage for the same occupation.”
This claim is based on an update of a flawed calculation by the Commonwealth Foundation. It compares the prevailing wage levels by trade as set by the Pennsylvania Department of Labor & Industry with the average wages for construction occupations reported in Occupational Employment Statistics (OES). The prevailing wages are 30% to 60% higher than the OES averages.
The problem is, the Commonwealth Foundation/PSAB calculation is the proverbial apples-to-oranges comparison: it measures different portions of the construction industry.
OES data include wages paid to workers employed in the residential construction sector — smaller, less-complex projects than prisons, bridges, schools and other state-financed construction. Residential construction relies on workers less skilled and experienced than those needed for larger state projects.
Indicative of this skill gap in Pennsylvania is the fact that construction workers employed in nonresidential construction — most of which is private sector, not public — earn 52% more than construction workers in the residential construction sector. In other words, the gap between the occupational prevailing wages set by the Pennsylvania Department of Labor & Industry and average construction wages reported by OES reflects the wage gap between residential and nonresidential construction. (See Table 1 below.)
Using OES data to estimate the potential savings from repealing the prevailing wage law greatly overstates the potential cost savings. Actual wage levels on state construction projects without prevailing wage laws would not fall 30% to 60%. Assuming such savings and assuming that any drop in wages would have no impact on worker skill and productivity lead to false claims of large savings from repealing prevailing wage.
Of course, why use hypothetical calculations at all when we have actual data on what construction costs with and without prevailing wage laws? In my next post, I will review the research literature that examines actual cost data over time and between states to estimate whether prevailing wage laws influence total project cost.
On Tuesday: Prevailing Wage Opponents Fail to Look at the Research
|Table 1. Average Weekly Wages in Residential and Nonresidential Construction in Pennsylvania|
|Construction Specialty||Average Weekly Wage: Residential||Average Weekly Wage: Nonresidential||% Difference in Residential & Nonresidential Wages|
|Heavy and civil engineering construction||ND||$1,262|
|Poured concrete structure||$688||$943||37%|
|Steel and precast concrete||$1,100||$1,126||2%|
|Glass and glazing||$888||$1,078||21%|
|Other building exterior||$818||$822||0%|
|Electrical and wiring||$887||$1,232||39%|
|Plumbing and HVAC contractors||$816||$1,245||53%|
|Other building equipment||$879||$1,233||40%|
|Drywall and insulation||$751||$1,093||46%|
|Painting and wall covering||$639||$985||54%|
|Tile and Terrrazzo||$686||$994||45%|
|Finish carpentry contractors||$718||$935||30%|
|Other building finishing contractors||$691||$870||26%|
|Site preparation contractors||$756||$987||31%|
|All other specialty trade contractors||$696||$977||40%|
|Note. ND=No data|
|† Average weekly wages for residential and nonresidential construction are an employment weighted average of the average weekly wages paid in each subsector.|
|Source. Keystone Research Center based on 2010 Quarterly Census of Employment and Wages data.|
 Beyond the fact that they measure wages in a construction market that bears little resemblance to the public construction market, OES data have other limitations that make them unusable and inappropriate for purposes of comparison with prevailing wage rates. At the county level, OES data do not distinguish between construction occupations within the construction industry (residential plus nonresidential) and those in other industries. Construction occupations in all other industries — e.g., utilities and manufacturing, repair industries and building services — are all lumped together with the construction industry itself in the OES. As a result, at the local level, even more than the state level, OES data measure wages in a pool of jobs quite different from those on state construction work. The OES survey does not collect information on compensation paid in the form of health insurance and pension benefits. To overcome this limitation, PSAB uses a national data source to assume that fringe benefits represent 30.4% of reported wages in Pennsylvania.