Legislation to end Michigan’s 50-year old prevailing wage requirement on public construction projects is winging its way through Lansing. Opposition by Detroit Mayor Mike Duggan and organized labor notwithstanding, the demise of the long-standing wage manipulation could dramatically reduce the state’s construction costs and pave the way back to the free market.
The most significant, indeed, deleterious effect of Michigan’s 1965 prevailing wage law has been to cause a spike in the cost of public construction. It requires payment of union-scale wages on all state or school district projects. How much is determined by collective bargaining agreements that cover less than 20 percent of the state workforce. Taxpayers subsidize this small but elite class of workers.
Such laws have always been special interest legislation masquerading as sound public policy. But a more accurate description of the prevailing wage is that it is a benchmark for higher union wages, not unlike so-called “living wages” and minimum wages.
Unions unapologetically support and favor such mandates. And because they are insulated from competition, organized labor feels no pressure to ask its members to be more productive, or to ever negotiate a lower wage for the services they provide.
By contrast, market rates would represent a significant advantage for contractors and taxpayers alike. In the real world, competition forces businesses to keep prices down. The absence of competitive bidding on public projects is an inevitably gouge of the public purse.
For example, if state government didn’t have to yield to whatever rate unionized firms demand, contractors could hire young, non-unionized employees or new job market entrants at lower cost. They could pay workers according to the skills they bring to the job. Potentially, these firms could negotiate and secure more state contracts.
In stark economic terms, unions restrict the supply of labor so as to drive up wages. Thus, they are able to maintain a strong presence in government construction work even as competition has driven them from other private sectors in the economy. It makes no sense for any unit of government to assist agenda-specific groups in their desire to fix prices and stifle competition.
In the end, no benefit accrues to taxpayers from these inflated costs. It bears noting they are not borne by the construction firm, but tacked on to each new contract and passed along to the government and, by extension, the taxpayer.
In fact, wage mandates tend to interfere with efficient labor/management processes, including inordinate adherence to union work rules, additional compliance, administrative, adjudication and enforcement costs through litigation. Firms that are unburdened by wage restrictions can modify their business plans as necessary without having the unions sign off on business decisions.
Almost a dozen states have repealed their prevailing wage laws. Only a handful has laws as strict as Michigan’s. States where they have been repealed experienced significant savings in construction costs.
If Michigan lawmakers have concerns about attracting substandard operators and maintaining high quality levels should spell out those standards and hold contractors’ feet to the fire to meet them.
Mayor Duggan’s opposition to the law’s repeal must be seen as an extension of his ongoing efforts to curry favor with his union buddies at the expense of the public good. He’s buried his head from the reality that taxpayers, including Detroiters, are fed up – finally realizing that this wage chokehold is an economic disincentive to growth and development. The resounding rejection of Gov. Rick Snyder’s road tax sent a clear message they are in a cost-cutting mood.
Taxpayers need a new and better deal that’s more in line with the existing economy. It starts with repealing the outdated prevailing wage.