Out of all the dubious and downright absurd ideas that some state politicians have been trying to sell taxpayers in recent years, one stands out above the rest: the suggestion that the cost of building schools, highways and other critical infrastructure could be trimmed by 20 percent by eliminating the local minimum wage — or prevailing wage — on government-funded construction projects.
Setting aside the political lunacy of essentially advocating middle-class wage cuts during an era of stagnation and rising inequality, what makes this canard especially ridiculous is that construction labor represents only a little over 20 percent of the total cost of building these projects — and it’s declining.
But that didn’t stop politicians in Indiana, Wisconsin, West Virginia and Kentucky from throwing caution and basic math to the wind. Beginning with Indiana in 2015, all four states have now repealed their prevailing wage laws. Other states, including Michigan and Missouri, are now considering following suit.
New research out of Indiana is providing even more reasons why they shouldn’t.
The Midwest Economic Policy Institute and Colorado State University-Pueblo Economist Kevin Duncan have just completed the first impact study analyzing what has happened since repeal in the Hoosier State.
Using publicly-available economic and census data, with comparative analysis from neighboring states that made no changes to their prevailing wage laws, they found that repeal has reduced Indiana’s blue-collar construction incomes by 8 percent, and by 15 percent for the lowest-paid construction occupations.
And after reviewing more than 900 bids on more than 300 school construction projects spanning 2013-2017, the researchers found that repeal has not opened “doors of opportunity” for more project bidders — as then-Gov. Mike Pence promised when he signed the measure into law — nor has it saved Hoosiers any money on public construction costs.
This latter finding only confirms comments made last year by the state assembly’s Assistant GOP floor leader, who acknowledged that repeal “hasn’t saved us a penny.”
So, other than reducing wages and increasing income equality, what has prevailing wage accomplished in Indiana? For one, it has meant more lower-skilled workers on jobs, and this in turn has shrunk productivity by more than 5 percent.
While the most recent study didn’t explore related issues like safety, there is evidence to suggest that repeal makes some of the country’s most dangerous occupations even more so. Prior to 2015, the last time multiple states decided to repeal their prevailing wage laws, their construction injury rates spiked 15 percent.
Repeal is also a drag on the economy. The new study shows that employment in this sector of Indiana’s construction industry is now lagging behind neighboring states. And prior research — including data out of Indiana and Wisconsin — has shown states that weaken or repeal prevailing wage laws utilize fewer local workers and export more tax dollars to businesses from out of town or even out of state.
In a fitting twist of irony, this new data comes as more and more construction trade groups both inside and outside of Missouri are expressing concern about skilled labor shortages, and as the country begins a long overdue dialogue about rebuilding our infrastructure. Calling for lower minimum construction wage standards is an absurd and counterproductive argument, at best.
Ultimately, when it comes to prevailing wage, states like Missouri must look to Indiana not as an example, but a warning.
The data reveals that repeal is not a shot in the arm as proponents claim. Instead, it is self-inflicted wound on the economy, the construction industry and taxpayers.
Marc Poulos is executive director of the Illinois, Indiana and Iowa Foundation for Fair Contracting and a director of the Illinois Economic Policy Institute.