Time to Repeal Prevailing Wage Law

Member Group : Allegheny Institute

Many, perhaps most, Pennsylvania school districts are facing a financial
crunch. With taxpayers already stretched to the limit and Harrisburg
contemplating large cuts to K-12 education spending, districts must watch
every penny. One way the Legislature can help offset the budget cuts and
assist school districts would be to repeal the prevailing wage requirement
for school construction and renovation.

Prevailing wages are determined by the state and are usually set at the
local union wage for construction occupations, which are usually well above
free-market wages. Research has shown these wages can inflate construction
costs by anywhere from ten to thirty percent. Eliminating this requirement
for school districts can help alleviate the cost and provide much needed
breathing room. For example, the Mt. Lebanon School District is planning to
build a new high school. The bids for the project came in 16.5 percent over
the budget forecast. If the prevailing wage requirement was not in place and
the bidding opened up to non-union contractors, there likely would have been
a bid near or under the projected budget.

There are thirty one states with prevailing wage laws including Pennsylvania
and Ohio. But where Pennsylvania diverges from its neighbor is with school
districts. In 1997, Ohio exempted school construction and renovation work
from the law. The legislature did so with the understanding that a study
would be completed to analyze the effects. The Ohio Legislative Service
Commission in 2002 released the study’s findings that school districts saved
nearly $500 million with an average savings on construction spending of 10.7
percent[1]. The results were encouraging enough for the Ohio legislature to
uphold the exemption.

How much could Pennsylvania’s school districts save if the prevailing wage
law was eliminated?

The Pennsylvania Department of Education releases an annual Report on School
Buildings in which they survey all school districts across the state on the
status of the school facilities and projected future construction needs.
The most recent report is from the 2007-08 school year[2] (274 school
districts (55%) responded to the survey). One of the main findings of the
report is that nearly 85 percent of the buildings were originally
constructed before 1980. Only fifteen percent were constructed since 1980.
Given the age of these buildings it is likely most districts will embark on
major renovations or be looking to construct new facilities in the near

Using estimated construction costs can give an idea as to the savings that
could be realized by opening up the bidding to competition and market wages.
Districts responding to the survey indicated that in the 2007-08 school year
they would spend $1.67 billion in a combination of new construction,
building additions, and renovations. Using Ohio’s 10.7 percent construction
savings from eliminating prevailing wage would have translated into
Pennsylvania savings of over $178.98 million in 2007-2008. The Report also
estimated that, for the 2010-11 school year, districts were to spend $521.6
million. Again using the 10.7 percent savings rate would amount to $55.8
million in total savings. Keep in mind that this represents a conservative
estimate. Some studies have shown savings to be as high as 39 percent.
Ultimately, the rate of saving will depend heavily on the location of the
school district and the difference between the prevailing wage rates and
market wages in the area. Savings will also depend on the strength of the
negative impact resulting from union work rules and their ability to create
workplace inefficiencies.

Proponents of the prevailing wage law will argue that the upfront savings
achieved by opening up the bidding to competition will be offset with lower
quality work that will have to be redone thus costing the school district
more in the long-run. Again the Ohio Legislative Report looked at this
argument and found no conclusive evidence of lower quality work. In fact,
98 percent of the respondents to the survey reported "no change in quality
or an improvement in quality." Even if prevailing wage proponents dismiss
the survey as being biased, there is one simple fix to ensuring
quality-proper monitoring by building inspectors. Not only does the
Commonwealth set standards for building quality, many municipalities have
building inspectors that monitor these standards.

As we noted in a previous Policy Brief (Volume 11, Number 29), the
percentage of Pennsylvania’s private sector workers belonging to a union has
fallen below ten percent. Even though the percentage of private
construction union membership has remained steady over the last two decades,
at twenty-five percent, this represents a small minority of workers in the
construction trades. Thus, the prevailing wage law is benefitting a
relative handful of the state’s construction workers. In short, there is a
massive transfer of income from taxpayers to union construction workers with
no accompanying taxpayer benefit or output increase relative to the
situation that would exist in the absence of prevailing wages requirement.

The prevailing wage law is an insult to taxpayers and the 75 percent of
construction workers who are not in unions. Why is it so sacrosanct in

[1] http://www.lsc.state.oh.us/research/srr149.pdf



Frank Gamrat, Ph.D., Sr. Research Assoc.
Jake Haulk, Ph.D., President


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[1] http://www.lsc.state.oh.us/research/srr149.pdf