Research and Case Studies
Smart Cities Prevail is dedicated to providing the most relevant and informative resources that allow our communities to make educated decisions on the prevailing wage issue. Below is a collection of case studies collected from cities and states who have kept or eliminated prevailing wage.
1. Kim, Jaewhan, Ph.D., et al., Prevailing Wage Regulations on Contractor Bid Participation and Behavior: A Comparison of Palo Alto, California with Four Nearby Prevailing Wage Municipalities, October, 2012.
Summary: The authors of this study analyzed bid results from 140 municipal projects built in 2006 and 2007 in five adjacent Silicon Valley cities. Unlike its neighbors (San Jose, Sunnyvale, San Carlos, and Mountain View), the City of Palo Alto does not require the payment of prevailing wages to construction trades people who work on municipally financed projects. The Silicon Valley data contradict claims that prevailing wage requirements discourage contractors from bidding on projects. After performing numerous statistical tests, the researchers concluded: "None of these results are consistent with the hypothesis that the absence of prevailing wage regulations attracts more contractors. Furthermore, we did not find that bids on Palo Alto non-prevailing wage jobs were lower than the engineer's estimate relative to bids on surrounding municipal prevailing wage work." The study underwent "blind" peer review and was published by the academic journal Industrial Relations, a publication of the University of California.
2. Working Partnership USA, Economic, Fiscal and Social Impacts of Prevailing Wage In San Jose, California, April 2011.
Summary: Municipal building projects covered by a prevailing wage policy employ a higher proportion of local contractors and local workers. Prevailing wage laws therefore help reduce the leakage of local taxpayer dollars by directing public construction expenditures into the local economy. If prevailing wage coverage is removed from a municipal building project, then roughly 6% of the project’s value leaks from the Santa Clara County economy. If prevailing wage had not applied to San Jose’s 2007-2012 municipal building projects: Total economic activity in the County would have fallen by $164 million; 1,510 fewer local jobs would have been created in the County; In addition to construction, the economic sectors with the greatest job loss induced by the loss of prevailing wage include retail and food service (88 jobs) and health (57 jobs).
3. Mahalia, Nooshin, Prevailing Wages and Government Contracting Costs: A Review of the Research, Economic Policy Institute, 2008.
Summary: The report concludes that, “An overwhelming preponderance of the literature shows that prevailing wage regulations have no effect one way or the other on the cost to government of contracted public works projects.” Workers on prevailing wage projects tend to be higher skilled, better trained, more productive, and less prone to serious and fatal injuries on the job site. Prevailing wage regulations contribute to enhanced tax revenues, and higher wages support local consumer spending. Prevailing wage regulations discourage unscrupulous contractors who typically cheat on payroll taxes, employ low skilled workers and shirk health and safety requirements on the job site. Prevailing wage regulations also help expand apprenticeship training programs which enrich the community by offering avenues for residents to secure good paying middle class jobs. Removing prevailing wage regulations and thereby lowering wage and benefit standards on local projects shifts substantial costs onto the tax payer by pushing workers into requiring more subsidies in healthcare, housing and other social services. It also displaces or diminishes middle class jobs that have traditionally supported local consumer spending which hurts local businesses.
4. The Fiscal Policy Institute, The Economic Development Benefits of Prevailing Wage, May, 2006.
Summary: An extensive economics literature shows that prevailing wage in construction means more cost-effective construction, and more skilled and better-paid workers. Skilled construction workers who receive higher wages are about 20 percent more productive than less skilled workers. All else being equal, higher productivity means lower unit costs. Industrial development authorities exist to enhance local economic development. Applying prevailing wage requirements to publicly-subsidized construction is likely to lead to a series of benefits that is the flip side of what has happened where prevailing wage has been repealed: higher construction wages, greater health and pension coverage, greater apprenticeship opportunities for less educated workers, and the more effective functioning of the construction labor market overall.
5. Gasperow, Bob, Construction Labor Research Council, Federal Highway Administration, Do Higher Wages Raise Labor Costs?, Reported, May, 2001.
Summary: A 14-year study of highway construction in the United States from 1980-1993, found that skills and productivity, not differences in wage rates, are the critical determiner of bottom line labor costs. The federal study found that the payment of prevailing wages and the use of higher paid; higher skilled workers reaped an average of $123,057 per mile in savings. The study found that "There is no basis to the claim that lower wage rates result in lower construction costs."
6. Phillips, Peter, Ph.D., A Comparison of Public School Construction Costs In Three Midwestern States That Have Changed Their Prevailing Wage Laws in the 1990s, February, 2001.
Summary: A study of public school construction costs in Kentucky, Ohio and Michigan over the period 1991-2000, found that the use of prevailing wages raised school construction costs by less than 1%, a statistically insignificant result. Instead of raising costs, the study found that the payment of prevailing wages and benefits forces contractors to hire and train a more skilled and productive labor force. The failure to pay living wages reduces wages, training and health and pension benefits. As a result trained workers migrate to other areas and young less trained workers have an injury rate 15% higher than trained workers.
7. Waddoups, C. Jeffrey, Ph.D., Employer-Sponsored Health Insurance and Uncompensated Care: The Role of the University Medical Center in Clark County, January, 1999.
Summary: A study of the University Medical Center (UMC) in Las Vegas (Clark County, Nevada), found that the failure to pay prevailing wages and health benefits shifts the burden of health care from employers to public health "safety nets." This adds costs to taxpayers as it allows employers to "free-ride" at the public's expense. The additional cost of this shift represents one-third of all uncompensated care at UMC, costing the taxpayers over $10 million per year.
8. Phillips, Peter, Ph.D., Presentation on Prevailing Wage Laws, Michigan Prevailing Wage Symposium, March, 1999.
Summary: A study of school construction costs from 1992-1998 for 104 schools found that with the payment of prevailing wages average costs were $99 per square foot. When prevailing wages were not paid the average cost was $104.
9. Prus, Mark, Ph.D., Prevailing Wage Laws and School Construction Costs: An Analysis of Public School Construction In Maryland and the Mid Atlantic States, January, 1999.
Summary: A study for the Prince George County's County City Council in Maryland compared school construction in three mid-Atlantic states (Delaware, Pennsylvania and West Virginia) with prevailing wages between 1991-1997 with two states (North Carolina and Virginia) that did not pay prevailing wages. The study found that the slight increase in costs for states with prevailing wages was statistically insignificant. Further, future savings in maintenance costs because of higher quality construction produced additional savings for the states.
10. Dillon, Rodger, California Senate Office of Research, Potential Economic Impacts: Proposals of the Department of Industrial Relations to Alter Methodology Relating to Prevailing Wages, May, 1996.
Summary: A proposal to lower prevailing wages has the unintended consequence of reducing $800 million in total tax revenues, far overshadowing the expected $160-200 million in savings from the proposal. The proposal would also shift huge numbers of construction workers to public health care systems because of the commensurate loss of health insurance and pension benefits. The proposal would also make public work sites more dangerous because studies have shown that union sites are safer because of the additional safety training received by union workers. Finally, the reduction of prevailing wages would reduce the number of minority workers on public works sites. The proposal was not adopted.
11. Reich, Michael, Ph.D., UC Berkeley Institute of Industrial Relations, Prevailing Wage Laws and the California Economy, February, 1996.
Summary: A reduction in prevailing wages would have the result of lowering tax revenues, reduce job site productivity, reduce worker training and job site safety, decrease the numbers of minorities in training programs, reduce health care and pension benefits, impact negatively on local and state health care systems, and slow the expansion of the California economy.
12. Phillips, Peter, Ph.D., et al, University of Utah, Losing Ground: Lessons from the Repeal of Nine 'Little Davis-Bacon' Acts, February, 1995.
Summary: A major study of nine states (Alabama, Arizona, Colorado, Florida, Idaho, Kansas, Louisiana, New Hampshire, and Utah) that had repealed prevailing wages found that the repeals had negative impacts on all state budgets. The loss of construction earnings and sales tax revenues had an adverse impact, and cost overruns on road construction also increased costs. In Utah, for example, these cost overruns tripled after the repeal. Training was reduced by 40%, minority representation was reduced in training programs and injuries increased by 15%.
The study concluded that if the federal Davis-Bacon Act was repealed that federal tax revenues would drop by $1 billion per year, and that there would be 76,000 additional workplace injuries in construction annually, with more than 675,000 work days lost each year. These increases would be felt in increased workers compensation costs and costs placed on public health systems by workers without health and pension benefits.
13. Phillips, Peter, Ph.D.,University of Utah, Kansas and Prevailing Wage Legislation, Prepared for the Kansas Senate Labor and Industries Committee, 1998.
Summary: After repeal of Kansas’ prevailing wage law in 1987; Construction wage incomes fell by 10% throughout construction industry; Employer health insurance and retirement contributions fell by 17%; Apprenticeship training fell by 38%. Minority apprenticeship training fell by 54%; Serious injury rates in Kansas construction increased by 21%; The projected 6%-17% saving rates on state construction costs used to sell the repeal failed to materialize. Per square foot construction costs for schools are virtually the same across the Great Plains states regardless of prevailing wage regulations.
14. Phillips, Peter, Ph.D., University of Utah, Quality Construction-Strong Communities: The Effect of Prevailing Wage Regulations on the Construction Industry in Iowa, 2006.
Summary: Productivity was found to play a major role in explaining why less expensive labor does not always result in lower government construction costs in the absence of prevailing wage laws.In prevailing wage states, construction workers earned an average of 15% more in wages and about 25% more in Social Security, unemployment insurance, and worker’s compensation.States with prevailing wage laws showed 13-15% more value-added per worker compared to states without the legislation.The result showed that prevailing wage laws raised productivity, possibly by inducing better management of projects, higher training standards, and more capital investment.Non-prevailing wage states created an environment where contractors would cut corners on safety, training, and payroll regulations in an attempt to offer lower bids. In Iowa, an estimated 2,500 workers were misclassified as independent subcontractors in order to save on payrolls. The misclassification of workers deprives the state of worker compensation and unemployment insurance payments, and allows the contractor to dodge health insurance, pension, and Social Security contributions.
(All of these studies have findings consistent with the studies summarized above).
15.Bilginsoy, Cihan, Department of Economics, University of Utah, Apprenticeship Training and Prevailing Wage Laws, February, 1996.
16. Carlson, Richard, Spectrum Economics, Inc., Impact of Repealing California's Prevailing Wage Laws on California's Local Economies, February, 1996.
17. Petersen, Jeffrey, Ph.D., School of Public Health, University of California, Berkeley, Health Care and Pension Benefits for Construction Workers: The Role of Prevailing Wage Laws, April, 1997.
18. Petersen, Jeffrey, Ph.D., School of Public Health, University of California, Berkeley, The Effects for California Construction Workers from Changing the Method of Calculating Prevailing Wage Benefits, February. 1996.
19. Phillips, Peter, Ph.D., Economics Department, University of Utah, Results of a Multi variate Regression Analysis of Construction Workers Incomes with a Focus on the Implementation of Prevailing Wage Policies, February, 1996.
20. Prus, Mark, Department of Economics, SUNY, Cortland, The Effect of State Prevailing Wage Laws, January, 1996.
21. Waitzman, Norman, Ph.D., Department of Economics, University of Utah, Worker Beware: The Relationship Between the Strength of State Prevailing Wage Laws and Injuries in Construction, 1976-1991, 1996.