Prevailing Wage Challenge in Quincy
In June 2009, the Quincy School Board initiated a court challenge to the Illinois Department of Labor, claiming that paying the Illinois certified prevailing wage was economically detrimental to the Quincy School Board and the community. To quote a background paper, prepared by school board members Jeff Mays and Glenn Bemis, “there is a significant disconnect between what taxpayers pay for improvements and construction to their own residences and businesses, and what taxpayers pay for improvements and construction for public capital projects.”
This paper will attempt to refute and analyze many of the arguments used as the foundation for Quincy to challenge the prevailing wage.
PREVAILING WAGE – what is it?
During the 1930s economic depression, President Herbert Hoover attempted to stimulate the U.S. economy by fostering public works projects. This was a promise to communities to help revitalize their stagnant economies. However, controversy soon broke out, as out-of-state contractors were winning these projects, importing lower-paid workers to complete the projects. To insure that local workers, not out-of-state workers, were employed on these federally funded projects, two New York congressmen introduced a bill that still carries their names, the “Davis-Bacon” act. This law said that federally funded construction was to pay “area standard” wages. It did not prevent out-of-state contractors from bidding federal projects, but they had to pay their workforce the standard wages for that geographic area. Thus a contractor from a rural state could not enter a large metropolitan area and simply pay the wage they might have paid in their home area, the contractor was required to pay the prevailing wage in the place where construction was done. This wage rate is determined by regular surveys of public construction work in that specific geographic area.
Following the federal adoption of this law, Illinois and many other states followed suit, passing what were known as “little Davis-Bacon” laws. In Illinois, the state statute covers not only state-funded construction, but requires every Illinois unit of government to pay prevailing wages for its county. The state does wage surveys of public works to determine these wage rates. Thus, the wage for Adams County is lower than the wage for Cook County, because there is a differential in wages between the two areas of the state.
PREVAILING WAGE FALLACY
One strong fallacy in the Quincy School Board report is that somehow paying area standard wages is “more expensive” and costs the taxpayer money. The school board arrives at this report by attempting to use U.S. Bureau of Labor statistics on average wages as a comparable to construction prevailing wages. On the sixth page of the School Board report, there is chart of area projects purporting to show the percentage of labor costs vs. material costs on recent school board projects.
Despite the Quincy School Board’s paper claim that labor costs ranged from 25 - 89 percent of costs for construction, the School Board report did not identify profit and where it was hidden within reported costs. Money for labor is not 100 percent payable to employees; hidden within labor costs are insurance plus administrative costs and corporate profit. Thus a plumbing contractor might charge $70 an hour for a plumber. That does not mean that the individual plumber carries home $70 hourly. Within that $70 are business cost, other personnel cost, like accounting, dispatching and supervision, and profit for the company sending the plumber. In the same way, in noting “materials,” the Quincy School Board study does not display how that cost is apportioned. Is there profit in materials? Are there auxiliary costs? Are there costs of transport and set-up on site included under materials? Thus to assume that a certain percentage of a project is labor vs. material is a simplistic analysis, leaving off numerous other factors that contribute to business costs, plus how a business apportions its profits.
Prevailing wage efficiency: According to a recent study by the Economic Policy Institute of Washington, D.C., “Prevailing Wages and Government Contracting Costs,” issued on July 8, 2008, there is no significant link between paying prevailing wages and increased costs. According to the study’s author, “the modern econometric literature finds no cost impact of public construction associated with the implementation of prevailing wage regulations.” This study looked at 28 different studies on prevailing wages and their impacts, from 1986-2006. Some of these studies were done by scholars, others by governmental units.
The EPI study points out a number of factors in construction costs that lead one away from simply blaming wages for construction costs and the belief that reducing workers’ wages will automatically reduce costs.
Skill – Paying more for skilled workers and attracting skilled workers through higher pay can result in efficiencies for the contractor and the purchasing public body. In a study that should be appropriate for Quincy to study, the Legislative Education Study Committee of the New Mexico State Legislature compared construction costs differentials between four western non-prevailing wage states and five western prevailing wage states. Schools were included in this 1996 study. The average cost was $6 per square foot less expensive in the prevailing wage states. The study author attributed this to higher productivity using better paid, better trained workers. This author noted a 1979 Bureau of Labor Statistics study that found that total labor costs were the same in the South and Northeast, though wages were 50 percent higher in the northeast. Again, productivity and training can explain this offset.
Also, a belief that setting a lower rate will necessarily mean that contractors will be attracted to bid at those rates and can also attract trained, competent labor is a fundamental question to ask. School should be built to quality standards. In a study on Iowa completed in 2006 by Dr. Peter Philips, productivity was found to play a major role in explaining why lower wages do not necessarily translate into lower costs. Workers in prevailing wage environments were found to have higher wages but also higher productivity. According to this study, “States without prevailing wage laws faced higher costs of maintenance and repair and had transitioned to a low-wage, low-skill workforce. Non-prevailing wage states created an environment where contractors could cut corners on safety, training and payroll regulations in an attempt to offer lower bids.”
Social Costs – A basic fact that the Quincy School Board study does not address is that if wages are cut for workers, the tax base for the school district and the area’s economic base is also cut. Workers making less money in school construction will have less money to buy a home and thus not pay school property taxes, and have less money to spend with local merchants and thus fewer dollars will turn-around in the local economy. A decently paid construction worker who can afford a new truck, regular groceries, make mortgage payments and enjoy local recreation and entertainment is spending dollars in the local economy, that helps stabilize the school district’s funding base.
A 1995 study by Belman and Voos, looking at Wisconsin, concluded that cutting prevailing wage rates would result in income and state revenue losses that would far outweigh the cost of wages. A similar 2004 study of Missouri by Kelsay came to similar conclusions, with a total economic loss to Missouri of $318 - $384 million if prevailing wages were repealed.
Prevailing wages are also often a barometer of apprenticeship programs, which provide training programs for young people graduating from local high schools who are not college bound. In Utah, apprenticeship programs plummeted 40 percent following the 1981 repeal of prevailing wage laws. In Kansas, apprenticeship programs fell 38 percent after a 1987 repeal.
Safety often follows apprenticeship and training. A 2005 study of accident rates found that states with prevailing wage laws experienced lower injury rates. The conclusion from this study was that prevailing wages helped attract qualified and trained workers, who were less likely to experience on the job injuries.
Prevailing wage laws, especially the Illinois laws, require that contractors make certified payrolls available. The absence of these payrolls was often seen to attract contractors who would try to cut costs by not making their required payments for Social Security, unemployment insurance or maintaining workers’ compensation insurance.
A basic question that Quincy and its school board needs to ask is whether it sees the community future as a low-wage haven, which will reduce the school board’s tax base, or a community where workers enjoy an American standard of living that allows them to buy a home, new vehicles and thus help build a stable economic base for the school district?
Is attempting to undercut wages the Quincy School Board’s strategy for a strong Quincy? Would not the school board better serve its community by not only promoting decent wages, but also promoting educational opportunities for young people through certified apprenticeship programs? Is a young person who gains the skills necessary to competently and safely perform construction projects going to want to stay in Quincy, when those skills can translate into better economic rewards also? Is this an economically downward-oriented plan that Quincy is attempting to foist on the community, while it spends taxpayer dollars challenging long standing state laws?
Numerous academic and political studies are available on prevailing wage. The studies cited above show that prevailing wages help attract skilled workers, thus gaining productivity in exchange for a higher dollar in wages. It also demonstrates that prevailing wages help maintain apprenticeship programs, vital opportunities for non-college bound area graduates. Finally, because prevailing wages help maintain a stable construction workforce, the community gains through fewer injuries or possibly fatalities on job sites.
A decent wage, trained workforce can be a key ingredient for Quincy’s economic revival and sustenance. Hopefully the Quincy School Board will reconsider its actions and place its energy in helping build that economic base, not spending taxpayer dollars attempting to erode it.
 Bemis, Glenn & Mays, Jeff, “State Prevailing Wage and the Duty of Local Government,” Quincy Illinois School Board presentation, 2008
 Ibid, page 6
 Mahalia, Nooshin, “Prevailing Wages and Government Contracting Costs: A review of the research,” Economic Policy Institute, Washington, D.C., July 8, 2008, Briefing paper 215.
 Ibid., page 2
 Phillips, Peter, “Square Foot Construction Costs for Newly Constructed State and Local Schools, Offices and Warehouses in Nine Southwestern and Intermountain States, 1992-1994, Legislative Education Study Committee of the New Mexico State Legislature.
 Phillips, Peter, “Construction: The Effect of Prevailing Wage Regulations on the Construction Industry in Iowa,” working paper, Economics Department, University of Utah.
 Belman, Dale and Paula Voos, “Prevailing Wage Laws in Construction: The Cost of Repeal to Wisconsin,” Milwaukee: Institute for Wisconsin’s Future, 1995.
 Kelsay, Michael, Randall Wray and Kelly Pinkham, “The Adverse Economic Impact from the Repeal of the Prevailing Wage Law in Missouri,” Working paper, Department of Economics, University of Missouri, 2004.
 Phillips, Peter, Garth Magnum, Norm Waitzman and Anne Yeagle, “Losing Ground: Lessons from the Repeal of Nine Little Davis-Bacon Acts,” Working paper, Department of Economics, University of Utah, 1995.
 Phillips, Peter, “Kansas and Prevailing Wage Legislation,” Report prepared for the Kansas Senate Labor Relations Committee, 1998.
 Phillips, op. cit.
Page Last Updated: Jul 26, 2011 (14:14:49)