Sunday, October 25, 2009

More on Prevailing Wage

Last week I talked about prevailing wage - what it is and why unions support it. This is an important issue that is in the news quite a bit lately so I think it deserves a little more time. As I said before, unions push hard for prevailing wage to be required as often as possible. If a contract requires prevailing wage, unions have a much better chance of winning the contract because the non-union merit shops are forced to pay union wages. Unions say that prevailing wage laws are necessary to level the playing field because union shops always have to pay union rates but non-union shops do not. They say that in order to be competitive, requirements to pay prevailing wages are necessary. So, ok we have prevailing wage laws. But that isn't enough. Too many non-union companies were still coming in with lower bids and winning large construction contracts. So the unions hired attorneys to start suing non-union shops for alleged violations of the prevailing wage laws.

One thing you have to understand about Ohio's Prevailing Wage laws is that the law itself it very detailed and complicated. It is almost impossible for any company, union or non-union, to work a prevailing wage job and complete all of the necessary paperwork without any mistakes or violations. The mistakes can be in actual pay rates or they can be simply paperwork errors. In addition, the law says that if there are errors in what a company pays an employee, the company must not only pay the back pay, but also must pay a fine to both the employee and the State of Ohio. Well I guess that seems fair. If a company doesn't pay the correct wages they should have to correct it. So here is the problem - the law allows an "interested party" to file a complaint with the State of Ohio's Department of Commerce, who oversees prevailing wage, whenever they have reason to believe a company is violating the law. The Department of Commerce begins an investigation but if the investigation is not complete within 60 days, the interested party can file a lawsuit on the 61st day. Maybe the most devastating part of this is that the law also says that the losing party in that lawsuit is responsible for all attorney's fees for both sides.

The unions began suing and in many cases violations of only hundreds of dollars would end up costing the non-union defendants tens of thousands of dollars, mostly in attorney's fees. This was a serious issue for many of these smaller non-union companies. Unions were getting what they wanted - either forcing non-union companies to stop bidding on prevailing wage jobs or put the companies out of business all together. Last year a representative of non-union construction firms, Associated Builders and Contractors, Inc. Ohio Valley Chapter, began fighting back by filing lawsuits against union companies for the same violations of prevailing wage laws. A recent article in a Cincinnati newspaper discusses some of these lawsuits, 69 filed in Butler county and 19 filed in Hamilton county.

The unfortunate part of what the article calls "an escalating battle between construction unions and nonunion contractors" is the defendants are all individual companies in Ohio. Are these companies really the problem? No, they're not. However, this may be the only way to truly make a difference. Associated Builders and Contractor's goal is to get the law changed. Unfortunately, all previous attempts to get the legislature to make those changes have failed. Once again, union influence has prevented these changes. The hope now is that by fighting back it can gain the cooperation of the unions in lobbying the state legislature to make the needed revisions to the prevailing wage laws. At minimum they want to change the part of the law that requires the loser to pay all legal costs.

Sources: 3

Sunday, October 18, 2009

Unions and Prevailing Wage

Last week I talked about how unions effect the auto industry and how that influence effects all consumers. The auto industry is not the only place unions have exerted influence over wages. Many years ago, unions lobbied for the passage of prevailing wage laws in many states. Union firms were losing jobs to smaller minority companies who underbid the larger, union companies. The union companies could have lowered their costs but instead lobbied for the passage of prevailing wage laws. Ohio first enacted a prevailing wage law in 1931. These laws effect how public entities must choose who will complete construction projects paid for by the entity and how workers on that project will be paid.

A public entity is any state, city or local government, including state colleges and universities. If one of these entities undertakes any type of construction project, which exceeds a minimum monetary threshold, it must follow certain procedures for contracting that work. There are certain exemptions, such as public schools (K-12) and hospitals. First, the public entity must publicly advertise that they are accepting bids for the project. There is a specific date by which all bids must be received and then the sealed bids are opened and read publicly. The job is then normally awarded to the lowest or best bid. Because smaller, non-union companies are able to under bid union companies most of the time, non-union companies would be at an advantage in this bid process. Therefore, unions want prevailing wage laws which require all companies who are awarded jobs by public entities to pay at prevailing wage. Prevailing wages are based on the union pay rates in that area. The end result is that non-union companies must pay their workers the same, higher rates of pay as the unions.

Sounds great, right? Well that is what proponents of the prevailing wage laws would say. Their argument is that governments are the largest purchasers of construction work and if there is not a minimum wage required for these jobs the average wages of workers in that local market would be artificially lowered. Some would say this is just protection for workers and anything that pays workers better must be good. Also, supporters say that these laws result in better quality work. This is an interesting conclusion since the majority of private construction contracts are awarded to non-union companies. If their work was not as good as union companies it is unlikely this would be the case. Supporters also say that prevailing wage laws lead to long term cost savings. Considering that these laws actually force higher wages it is logical to conclude that it actually leads to higher construction costs. Once again the unions have exerted their influence to force a system which interferes with a free market and causes inflated costs. All of this is paid for by you, the taxpayers.


Sunday, October 11, 2009

How Unions Impact the Economy, Jobs and Wages

Unions say they benefit the workers. This may be true - they may help workers to obtain higher wages. Unfortunately unions' goals are essentially to redistribute the wealth between all of the workers. That means taking away from the more productive workers to give to the less productive workers. Great for the less competent, less desirable members of the workforce but not so great for those workers who work harder and do a better job. Unions take away the individual rewards for accomplishments. How would you feel if you went to work every day and put 110% effort into doing your job well and you were paid exactly the same as the person who gave 50% effort most of the time? How would you feel if all your hard work essentially meant nothing?

For all the good unions may do for workers as a group as far as wages, they actually harm the overall economy. Most economists compare unions to cartels because both work in a similar way. It's all about supply and demand. Unions restrict the number of workers available and force higher wages. This makes the unionized company less profitable which in turn lessens the number of jobs available. Unionized companies are also less competitive due to the higher cost of doing business. In fact, over the past thirty years or so most of the manufacturing jobs lost in the United States were at union companies. Non union manufacturing jobs have actually risen.

So who pays for the higher wages paid to union workers? You do! The higher wages reduce the profits of the union companies. Reduced profits lead to less demand for workers because the company has to cut costs. The company can also absorb the increased costs by passing the cost on to the buyer. So we pay more for the same product. A good example of how this works is the auto industry. The United Auto Workers Union (UAW) has forced the combined wages and benefits of union autoworkers to over $70 per hour. That doesn't include the cost of benefits for retired workers. The automakers are forced to deal with these union demands because if they do not pay what the union demands, the workers will strike. Of course all of this means we, as consumers, pay more for our cars. Higher prices to purchase a car leads to lower car sales - less demand - which in turn leads to job loss for the auto workers.

It is a vicious cycle which could be changed by allowing for normal business competition. Unions oppose trade and competition. Even in normal economic conditions unions have negative effects. The negative effects are compounded during times of economic recession and unions delay economic recovery during times of recession.


Saturday, October 3, 2009

Disadvantages of Labor Unions

Last time I talked about the advantages of labor unions. There are also disadvantages to labor unions, both to the employees and the employers. First, employees lose their individual voices. Employees give up their right to negotiate for themselves or to have their individual concerns and benefits recognized. Being part of a union means allowing the elected union leadership to negotiate for the group as a whole. Decisions for the group are made based on what is best for the majority, not necessarily by what is best for any individual employees. Majority rules. An example of when this may be a significant disadvantage to individual employees is when the majority votes to strike. A strike is never guaranteed to end positively for the employees. It can last an extended amount of time and the union may never get what they wanted from the employer. Also, employers are permitted by law to take the necessary steps to continue their business during the strike. Replacement employees can be hired and once the strike is over the union employees' jobs may not be available. A strike always has the potential to be financially devastating to the individual employees, even if that employee was not in favor of the strike.

Strikes are not the only financial disadvantage of trade unions. Unions cost employees money in several ways. All union employees pay dues to the unit in order to help financially support that union. In addition, unions can fine employees for conduct or activities the union views as detrimental to the union or it's membership. Examples of when an employee may be fined are crossing the picket line during a strike and exceeding productivity quotas. Unions view higher than average productivity as harmful to the other members of the union; therefore, the union establishes maximum production levels that union members must stay under.

Employees are not the only ones effected by unions. There are many disadvantages to the employer involved with a union also. The production quotas that union employees must maintain can have a negative effect on employers. There is no incentive for employees to work harder to gain promotions or pay increases. There is no such thing as individual recognition. All employees are viewed the same and treated the same. In fact, employers are limited by the union in their ability to discipline or terminate an employee. A combination of no incentives and potential union fines mean the employer can suffer from reduced productivity. Reduced productivity can mean the employer is less competitive which can lead to job losses. In addition, unions typically demand much higher pay rates, sometimes increasing at a rate higher than inflation. Reduced productivity, loss of ability to be competitive and higher pay rates can lead to layoffs or even cause the company to go out of business.