Michigan’s Prevailing Wage Law

While lacking the catchy title of “Right to Work,” the current debates and impending vote to strike down Michigan’s Prevailing Wage law have the potential to have similar impact on the State’s skilled trades workforce.

In government contracting, a prevailing wage is defined as the hourly wage, usual benefits and overtime, allegedly paid to the majority of workers, laborers, and mechanics within a particular area.  This wage is then used to calculate the cost of the labor component of bids for work within the varying levels of Michigan government.  It was designed to “level the playing field” and to make sure that bids were not awarded in part for wages that might be below the market rate in the area.

The debates in Lansing have been very interesting, as there seem to be both reasonable logic and valid arguments on either side of the issue.  The plot took a twist a few weeks ago, as Governor Snyder offered only lukewarm support for the measure, something that would be at odds with the largely Republican legislatures.

If the Prevailing Wage shares one other thing in common with Right to Work, it is that the vote will probably be taken spontaneously, rather than at a pre-determined time.  That has been the typical mode of operations over the last several legislative sessions.

We have enlisted attorney Brian Elder and Jimmy Greene, the President and CEO of ABC Greater Michigan, to help sort through the issues at hand and to explain the arguments on either side.

PRO:  The Truth Behind Attacks on the Prevailing Wage

What is the “Prevailing Wage”?  Because the issue involves money and politics, some of the basic nuts and bolts of this issue can get muddled.  The “Prevailing Wage” is the cost of the average wages and benefits paid to a majority of workers for a particular job in a particular area.  The State of Michigan calculates the prevailing wage for each county.  Despite what opponents may claim, since the Prevailing Wage is calculated as an average, it is not a “union wage”.

Why do we have a “Prevailing Wage”?  Prevailing wage laws go back to right after the Civil War when they were first initiated by the Republican controlled Congress.  They are used to establish a baseline for certain costs on public works projects.  In the State of Michigan, the purpose of the prevailing wage is to give a local preference for local businesses and workers in your own county.  The prevailing wage is designed to keep tax dollars circulating in local businesses and local economies.  The wages generated help workers to live middle class lives, pay mortgages and taxes, spend money in local businesses and have time to volunteer in the community.  The wages also create workers who have a long-term career, instead of a short-term job, and so are more valuable to their business owners.

Prevailing Wage is a policy choice that says, “We prefer local businesses and people who live and work near us”, and we have a right to make that policy choice.  After all, these are tax dollars we are talking about, and we in the middle class are paying an ever larger share of the taxes in this State.  In fact, those of us who haven’t seen any of the $1.8 billion in tax cuts over the last few years have a greater right to make this choice than some.

Why doesn’t a lower wage for workers equal lower costs for taxpayers? In Michigan, the Prevailing Wage Act was suspended for over two years in the 1990’s. A study by Professor Peter Philips of the University of Utah proved there was no real difference in construction costs during this time.  Other states that have repealed their own prevailing wage laws reported similar findings.  Why?

Really, it’s simple to understand.  If a low-wage, (often out-of-state) contractor wants to “beat” either a local union contractor or decent-wage contractor in the wage category, all they have to do is under-bid the wages by enough to “win”.  Result: little to no savings in the bottom line bid. 

Ah, but there is more, and this is the real reason behind the fight.  After bidding a nice, large number for wages (but just low enough to win the contract) the low-wage employer does not have to pay that number to the worker.  The difference between the bid number and the amount the worker actually gets paid is “profit” and just goes into the pocket of the low-wage employer.

Some political issues can be complicated, but this is not one of them.  You get what you pay for.  And if you are going to pay the same any way, wouldn’t you rather have your money in lots of local pockets rather than one big, out of town pocket?

Brian K. Elder is the owner of Brian K. Elder, P.L.C. and serves as legal counsel to several area unions and local governments.  Mr. Elder is a former Chairman of the Bay County Board of Commissioners, where he served 8 years, and happily (some say gleefully) enforced prevailing wage laws for the beautiful $25 million Bay County Library renovation.  Currently, Mr. Elder serves on the Board of Directors of the Henry Marsh Institute of Public Policy at Saginaw Valley State University.

CON:  The Case Against Prevailing Wage and For Free Enterprise

The issue of Prevailing Wage is an interesting one when one considers few understand its history and even fewer its economic impact on construction costs, so let me explain both a little.  The legacy of Prevailing Wage goes back to 1930 when it was used as a discriminatory practice to eliminate Black construction workers from public dollar contracts since they were delivering quality projects at almost 1/2 the cost as their White contractor competitors.  The practice worked so well then that it's almost impossible to find a Black General Contractor anywhere in the US.  

Now for the “what is it?”  A state “prevailing wage” law pegs wages on public projects to those paid to union workers if the union represents more than half of the hours worked by a trade in a given county. Absent that, the prevailing wage is set by taking a weighted average of the top 50% of all wages.  Here's the real rub; when the polling is done on wages for workers in the area...it would be a little more credible if non union contractors were actually polled as well.  Polling to create an artificial wage is disingenuous at best.   But it's worked for decades.  

The system benefits union contractors who are protected from a competitive bidding process in which they might have to compete for jobs against lower-cost contractors. Less fortunate are small contractors who often can’t shoulder the high costs of complying, and therefore often opt out of the bidding.

Taxpayers also pay more for what amounts to a super-minimum wage for construction.  Now opponents will say that anyone can bid on Prevailing Wage jobs and I would counter: “Can anyone really play hockey?”  

The truth is that Prevailing Wage is a set aside for Union Contractors and at the expense at the taxpayers despite what my opponents on this issue assert.  Michigan is one of only 6 States that continue to punish tax payers with this antiquated law and it's time, much like the VCR, the Typewriter, and the landline telephone to go away as one of many great ideas whose time has come and gone.  

Jimmy E. Greene, CEO/President

Associated Builders & Contractors, Greater Michigan