Prevailing wage laws have been in the news a lot lately. In fact, just last week we released an article on the subject: Does Removing Prevailing Wage Laws Lower the Cost of Construction? Many states are asking that same question, and a few have even repealed their prevailing wage laws in recent years. Michigan is the latest addition to that list. Effective immediately, prevailing wages are no longer required for Michigan public projects. Of course, contracts already agreed to and projects underway will abide by the previous regulations.
What are prevailing wage laws?
Prevailing wage laws act as a sort of minimum wage for public construction projects. They require that workers on public projects be paid a similar wage as workers on private jobs in the same area. The premise is simple: similar work in the same area should result in similar pay, regardless of whether a job is public or private. Prevailing wage laws were originally passed so that local workers could not be undercut for local public jobs. They’ve since evolved to make a profound impact on public construction projects and the construction industry as a whole.
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For federal projects, prevailing wage laws were instituted by the Davis-Bacon Act. On the state, county, and municipal level, prevailing wage laws are controlled on the state level – and only about 60% of states have prevailing wage laws on the books.
Michigan Prevailing Wage Laws Repealed (Plus Why)
Since 2015, five states have repealed their prevailing wage laws, Michigan being the most recent. Michigan lawmakers used the same arguments made in other states. To quote Arlan Meekhof, the state’s Senate Majority Leader: “The time has come to eliminate this outdated law and save our taxpayers money.” That’s usually the argument against prevailing wage laws: they artificially alter prices rather than let the market dictate price. Those in favor of repeal claim that because wages must meet a certain threshold, the price of public projects soar beyond what they would otherwise be.
Make sense, right? Well, project costs are a little more complicated than that. On a construction site, 1+1 might not always = 2. As we discuss in an article published a few weeks ago, the removal of prevailing wage laws doesn’t necessarily equate to cheaper projects.
Repealing Prevailing Wage Laws Does Not Necessarily Mean Cheaper Projects
There have been a number of studies on the effects of eliminating prevailing wage laws. Most come up with the same result: eliminating prevailing wage laws does not necessarily mean project costs go down. Two of the main reasons are as follows:
On most projects, wages represent about 20% of the project’s cost. Thus, lowering project wages will only affect a fraction of the 20% of the project cost.
Further, workers like making money.
Top performers won’t just take a pay cut because prevailing wage laws go away. If skilled workers will be paid less on a public project than a private one, it only makes sense to work on the private project. Those skilled workers who may have taken a public job will be replaced with workers who are less skilled – and less efficient. Plus, corrective work costs more too. What’s more, as everyone in the construction industry knows, one party falling behind or making a mistake can lead to a plethora of scheduling issues and the costs begin to pile up. At the end of the day, when workers are less efficient, any savings from paying a lower wage might very well be negated anyway.