Answering the Opponents of Prevailing Wage: The Misleading “Wage Differential” Studies

Prevailing wage opponents take the “Jeopardy” approach to economic analysis: Start with the preferred answer of cutting wages then ask what the “question” is.

One of the most common tactics used by prevailing wage opponents is to produce overly simplified and misleading “wage differential” studies to attack prevailing wage with outlandish and mathematically dubious claims.

The fact is that construction labor costs on most projects fall between 20 and 25% yet these “studies” consistently claim that lower wages would result in savings greater than the wages and benefits earned by a project’s construction workers.

The only way you could make these claims work would be if all construction workers on the project worked for free – or paid to go to work! Put simply, this is mathematically impossible.

These “studies” make the oversimplified and unrealistic, yet seductive, argument that prevailing wage laws increase construction costs and are therefore a bad deal for taxpayers who could simply build more schools or sewage treatment plants for the same money.

These propaganda exercises don’t use actually existing wage rates for determining construction costs, which actually happens with prevailing wage and Davis-Bacon surveys. Instead, they use aggregate wage rates from the Bureau of Labor Statistics and state employment agencies, which include all workers performing a particular occupation, regardless of their skill level, their industry (handyman vs. commercial framing), or the type of construction they’re performing.

Second, these “studies” make a huge and misleading assumption – that all of the “savings” from using lower wages will simply be returned to the taxpayers! And then more magic happens: Government would then use these savings to build more schools and sewer plants. As we all know, these arguments have no basis in reality.

Independent legislative analysts know better than to trust flawed and biased “wage differential” studies.

In March 2015, an analyst for the Wisconsin Legislative Fiscal Bureau reviewed the articles written on prevailing wage and came to the following conclusion:

“A review of the literature related to prevailing wages and government contracting costs reveals three main research categories: a. wage differential approach, b. cross-sectional analysis ("with and without-law" comparisons), and c. time series analysis ("before and after" comparisons) The wage differential approach consists of determining if wages under prevailing wage laws are higher, and assumes that the increase in wages is directly passed on to the government in higher contract costs. This is an intuitive approach and is consistent with the notion that if wage rates increase, so will the total construction costs. However, such approaches typically assume no change in the behavior of contractors in the face of higher wages and, therefore, pass the entirety of the increase in labor costs on to governments in the form of higher contract costs. This approach typically assumes that productivity, material costs, and the labor share of construction all remain constant. In addition, these studies typically do not control for other factors such as project location, project type, or time of year which also can significantly affect costs.” [Emphasis added].