Prevailing Wage Opponents Fail Labor Market Statistics 101

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.[1] (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
Construction† $771 $1,170 52%
Building construction $796 $1,223 54%
Heavy and civil engineering construction ND $1,262  
Poured concrete structure $688 $943 37%
Steel and precast concrete $1,100 $1,126 2%
Framing $644 $985 53%
Masonry $636 $957 50%
Glass and glazing $888 $1,078 21%
Roofing $660 $942 43%
Siding $730 $946 30%
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%
Flooring $625 $988 58%
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.

Footnote

[1] 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.

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