Prevailing wages don't hurt the economy, they boost it - new Minnesota study
Posted On: Oct 05, 2018
St. Paul: In the wake of Michigan’s controversial decision to repeal its prevailing wage law, new research shows that Minnesota’s prevailing wage law boosts the economy by almost a billion dollars every year, creates 7,200 jobs, strengthens apprenticeship programs, increases local hiring by 10%, and has no significant effect on the overall cost of publicly-funded construction projects. The research was completed by the Midwest Economic Policy Institute and University of Colorado State University-Pueblo economist Dr. Kevin Duncan.
“This study brings important, new evidence that Minnesota’s prevailing wage law maintains wages and benefits for Minnesota’s construction workers, reducing their need for public safety programs and helping to keep these working families in the middle class, and it does this without a detectable impact on public construction costs,” said University of Minnesota labor economist Dr. Aaron Sojourner. Sojourner is a former economic adviser to President Trump and President Obama who performed a peer review of the research.
Prevailing wage functions as a local minimum wage for different types of skilled construction work. It is typically applied to publicly-funded projects like roads, bridges, and schools, and is based on what skilled craft workers in the community are most often paid for comparable work. The state’s average full-time, blue-collar construction worker currently earns about $48,000 per year.
“Prevailing wage is a win-win-win for Minnesota taxpayers, the state’s economy, and the construction industry,” said study co-author and Colorado State University-Pueblo economist Kevin Duncan. “While the data consistently shows that overall project costs and bid competition are not affected by the law, its impacts on wages, local hiring, welfare reliance, workforce productivity, and the overall stability of the labor market are especially significant.”
The study analyzed more than 600 winning bids for school construction projects in the Twin Cities region between 2015 and 2017. While the majority of bids did not include prevailing wages, there was no statistically significant difference in the average total cost of prevailing wage bids and non-prevailing wage bids. However, prevailing wage bids utilized 10% more local subcontractors.
“In terms of project costs and local hiring, the new data out of Minnesota mirrors what’s been seen in other states,” said study co-author and Midwest Economic Policy Institute Policy Director Frank Manzo IV. “A repeal of Minnesota’s prevailing wage law would not save money, but it would export more tax dollars to businesses from out of town.”
In their study, Manzo and Duncan compared economic and construction industry outcomes in seven Midwestern states—four that have no prevailing wage law, including one which recently repealed its law in 2017 (Wisconsin). The study found that construction workers in Minnesota earned 5% higher wages, were 5% more likely to have health insurance, and were less likely to rely on food stamps due to the prevailing wage law.
“Prevailing wage means more local workers with higher incomes and health insurance, and fewer on food stamps,” added Professor Duncan. “Taken together with higher rates of local hiring, this important difference ultimately ripples throughout all sectors of Minnesota’s economy, producing almost a billion dollars in additional growth each year and 7,200 jobs.”
Amidst growing concerns about construction labor shortages, the study also finds that Minnesota’s prevailing wage law maintains an important safeguard by promoting investment in skilled trade apprenticeship programs. Joint labor-management programs—private and self-funded by just a few cents per hour worked—currently produce 93% of the state’s construction apprentices and a disproportionate share of women, people of color, and veterans pursuing careers in the construction industry. These investments have enabled the Gopher State’s construction industry to achieve significantly higher workforce productivity than neighboring states that have repealed prevailing wage.
“It’s no accident that the key indicator of workforce productivity, or value added per construction worker, is almost 8% lower in Indiana, which recently repealed its prevailing wage law,” Manzo added. “That’s because repeal means less front-end investment in skills training, more reliance on low-skilled workers from out of town, and higher employee turnover. This increases waste and inefficiencies on the jobsite, makes projects more prone to delays and safety problems, and ultimately invites labor shortages.”
The Midwest Economic Policy Institute (MEPI) is a nonprofit organization which uses advanced statistics, reliable surveying techniques, and the latest forecasting models to develop timely and dynamic analysis of policy issues affecting the economies of the Midwest.
Kevin Duncan is a Professor of Economics at Colorado State University-Pueblo and has been a visiting scholar at the Institute for Research on Labor and Employment at the University of California, Berkeley. Duncan has provided testimony and research related to construction labor market policy to numerous state legislatures, and his research on prevailing wage laws has appeared in leading national and international peer-reviewed academic journals such as Construction Management and Economics, Industrial and Labor Relations Review, and Industrial Relations.