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.


1 comment:

  1. First, it should be noted that Prevailing Wage is a misnomer in that the wages mandated by government on publicly funded construction projects are not prevailing, but instead a union wage rate as you correctly point out. A true prevailing wage would be to conduct a wage survey of all trades, bith union and non-union and take that average for each area.

    So-called prevailing wage rates are typically mandatory on all public projects, regardless of size, scope or budget of the project. These higher rates do not lead to a better end product for the owner, as is evidenced by many public works projects that have had more than their fair share of problems.

    In addition, prevailing wages are not limited to publicly funded projects. There is an ongoing trend for construction labor unions to demand prevailing wage rates on private projects that receive any type of tax incentives or other public subsidy in the name of job creation. Of course, because prevailing wages add about 30 percent premium to a project, forcing a private owner to agree to paying prevailing wages in order to receive financing and other tax incentives is counter intuititve to the government's end game of having that same employer create jobs.

    Finally, prevailing wages are another tool of organized labor, pushed onto taxpayers to help trade unions maintain some kind of competetiveness. Everyone agrees that earning a good wage and benefits are important. Far too often the unions' claims that non-union contractors don't provide their employees with decent wages and benfits are unfounded. Truth be told, if the unions' wage, benefit and work models were so superior, they would not be hemorrhaging members like they are now.

    In the end, it the already beaten down taxpayer and their ability to hold onto what little they have that gets hammered by this and other bad public policies that seek to curry favor with special interests.