Dale Belman
Associate Professor of Economics and Industrial Relations, University of Wisconsin-Milwaukee
Paula B. Voos
Professor of Economics, University of Wisconsin-Madison
October 1995
The Davis-Bacon Act, established to protect local wage levels on publicly-funded construction projects, is being challenged in Congress. Attempts to repeal Davis-Bacon and weaken state prevailing wage laws are based on the claim that repeal will bolster state and federal budgets. However, in the nine states in which prevailing wage laws were repealed in the 1980's, state budgets and taxpayers did not benefit. In fact, repeal of these regulations actually resulted in a loss to state budgets and had a negative impact on state economies. The problematic consequences of repeal included:
1. The decrease in wages to construction workers due to repeal of wage standards results in a major loss of tax revenue to state governments. In Wisconsin, repeal of the federal wage statute, the Davis-Bacon Act, would lead to a $11.6 million annual loss in tax revenues. Repeal of the state statutes in addition to the federal law would lead to an overall loss of $23 million.
In states which repealed prevailing wage laws, average earnings dropped for all construction workers - union, non-union, those working on public projects, and those working on private projects. Repeal itself caused an average decline of $1,350 in earnings (5.1% of construction income).
Repeal of Davis-Bacon would cost Wisconsin's 100,000 construction workers approximately $123 million a year in lost income. This estimate includes projected employment changes subsequent to repeal, but does not include possible "ripple effects" occurring when other state residents experience income declines due to reduced spending by construction workers. With simultaneous repeal of federal and Wisconsin wage laws, construction workers in Wisconsin could lose almost $250 million in income.
2. Repeal of the prevailing wage laws would hurt, not help, the Wisconsin state budget. This study shows that the decline in state income and sales tax revenues would exceed the minimal savings in construction costs to the state derived from decreasing worker wages.
If the Davis-Bacon Act is repealed, the tax revenue loss of $11.6 million exceeds the $4.8 million savings in construction costs creating a net loss to the state of $6.8 million per year. If both the state and federal statutes are eliminated, this loss would be doubled to $13.6 million. At the national level, researchers predict that the repeal of the Davis-Bacon Act would lead to an increase in the federal deficit of $1 billion. Wisconsin taxpayers would ultimately bear a portion of the negative impact of this increase in federal debt.
REPEAL OF PREVAILING WAGE LAW
Impact on State Budget
Annual Impact in Millions of Dollars
3. In states that have repealed prevailing wage laws, occupational injuries have increased. This results in higher workers' compensation costs.
Serious construction injuries increased in the states where prevailing wage laws were repealed. Plumbers and pipefitters experienced an average of 15% more serious injuries per year following repeal. This increase in injuries is due to a combination of factors—the use of inexperienced workers, a decline in training and cut-throat competition. When contractors are forced to reduce labor costs, workers are often pressured to speed up and take more chances. These and other factors increase accidents in an already hazardous industry. Of the $62 billion spent on workers' compensation nationwide, about 30% covers construction-related injuries and illnesses. Repeal of Davis-Bacon and/or state statutes would cause a substantial increase in workers' compensation costs in Wisconsin.
4. Elimination of prevailing wage statutes leads to increased costs associated with the use of low-wage workers.
Lower construction wages in repeal states have led to reduced levels of worker skill and efficiency, higher maintenance costs and a dramatic increase in project cost overruns. According to a HUD Audit Report, poor workmanship resulting from the use of inexperienced or unskilled workers and short cut construction leads to excessive maintenance costs and increased risk of defaults and foreclosures. Use of high-wage, high skill labor may lead to lower total final costs, particularly in complex projects where productivity and skill is important. In addition, quality construction lowers maintenance costs. Repeal of laws in Utah resulted in additional direct construction costs as cost overruns on state road construction tripled. In addition, with repeal, fewer construction workers are likely to receive paid health insurance. This could cause publicly-financed health care costs to rise, increasing the burden on state budgets.
5. Current proposals to eliminate prevailing wage statutes threaten the stability of the apprenticeship training system. This system ensures a skilled labor force and provides minorities with increased access to construction jobs.
Prevailing wage statutes have proven to be a crucial foundation for the apprenticeship training system in construction. In Utah, repeal led to the virtual collapse of the apprenticeship system. Union capacity to sustain apprenticeship training dwindled. State vocational training did not fill the gap and non-union training systems lacked stability. As competition increased, apprentice employees were not released from work for training classes and the graduation rate among enrolled apprentices dropped from 95% prior to repeal to 15% after repeal of the statutes. Utah now faces a significant shortage of skilled workers. Arizona has had a similar experience.
Proponents of repeal often claim that prevailing wage laws are detrimental to minority groups attempting to enter the construction trades. In fact, minority access to construction training in repeal states dropped 22%. In addition, the ratio of African-American unemployment to white unemployment did not decrease as supporters of repeal had predicted. In fact, after repeal, the percentage of African-Americans facing unemployment grew at a faster rate than whites in construction.
The evidence reviewed in this study indicates that the Davis-Bacon Act and Wisconsin's prevailing wage laws are beneficial to the State of Wisconsin and its citizens.
The elimination of prevailing wage laws would cost the state more in tax revenue than it would save in construction costs. Prevailing wage laws benefit the public budget.
Prevailing wage statutes make economic sense. Wage standards result in lower maintenance costs by ensuring construction quality and contractor stability, a decrease in cost overruns, a lower incidence of construction-related injuries and reduced workers' compensation costs. The prevailing wage structure supports a strong system of apprenticeship training in the construction trades which provides access to high-skill work for young people and minorities and ensures the availability of skilled labor to the state.
Prevailing wage laws ensure that the competitive bidding process is not used to undermine community wage levels and living standards.
Belman, D. & Voos, P. (1995, October). Prevailing wage laws in construction: The costs of repeal to Wisconsin. Milwaukee, WI: Institute for Wisconsin's Future.
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