The Debate Over Prevailing Wage & State Contracts

The prevailing wage law was enacted in 1965; it provided that the state department of labor determine, before taking bids on any state sponsored government contract, mandatory prevailing wage and benefits for each type of contractor or mechanic according to local union wage rates.

In 1965 this law was meant to keep union shops competitive despite the higher wages they pay.  Pushing out the local non-union contractors helped the union bosses in the old days, but this law was a cynical ploy that tended to limit price competition for government projects, and to push already bloated budgets to unsustainable levels.

Hence the “government hammer” syndrome; while many government projects are well conceived, restraints on competition make everything the government does cost more than it would cost in the Private Sector, where free market competition drives costs down to affordable levels. More than 80% of the skilled trades labor force is not affiliated with a union, yet union collective bargaining agreements are what determine the “prevailing” wage.

Michigan Repeal Prevailing Wages and Fringe Benefits on State Projects Initiative may appear on the ballot in Michigan as a Ballot Question on November 6, 2018. The initiative would remove the union wage requirement, contractors that provide wages and benefits below the prevailing wage and benefit levels would be able to make bids on state projects. The proponents filed north of 380,000 signatures on November 3, 2017 against a 252,523-net signature requirement.

If the signatures check out this time (signatures were disqualified in 2016) then the proposal is submitted to the legislature, where they may enact it during a 40-day window period, or it becomes a ballot question at the November 6, 2018 election. 

The initiative proposal may legally be enacted by the legislature with no governor’s veto allowed, which was a significant strategic factor driving the initiative. The Republican-led state legislature has long sought to repeal prevailing wage, but has refrained from directly doing so because Republican Governor Snyder had signaled he would veto such legislation. Governor Snyder opposes the repeal effort feeling it would undermine development of skilled trades. Union leaders claim that repeal of the prevailing wage law will drastically affect union training programs. Union contracts already have a cents-per-hour clause that dedicates a part of wages to training programs. 

Even if Public Works was tied to training costs, which it is not, it would still be mathematically impossible to have the effects claimed, as PW jobs make up less than 15% of construction statewide. The prevailing wage law applies to “a fairly limited set” of projects according to governor Snyder, who says that federal wage rules apply to any project that involves federal funding.

The initiative was an effort to use this loophole to avoid Snyder’s threatened veto, and proponents expect the proposal to be adopted without a vote. This tactic might work, but now unions have announced a countermove of their own – they just started their own petition drive on the theory that they may, in effect, reinstate the prevailing wage law at the ballot box in November.

This clever counter-proposal might force the legislature to think twice about the plan to enact the prevailing wage repeal without a vote, or a veto, if they believe that the union initiative will make the ballot. Legislators may or may not wish to face mid-term voters in a head to head matchup, but they may not want to risk voter approval of the union proposal on the ballot alone. They may wish they had never thought of the idea if this fight tilts against them, and they lose seats in the legislature over prevailing wage next November.

This all makes for interesting inside baseball for civics professors, but this issue is important because it may be the end game of the “right to work” vs. “right to work for less” political war over union preferences in government contracts. Most government services are provided not by employees, but are outsourced to private companies contracting with the government. Mandatory union level wage means cheaper non-union contractors can’t compete, and that costs the taxpayers more money for all projects.

The question is whether this kind of government system of picking winners and losers in favor of unions is the proper way for society to encourage fair pay for wage earners, and whether we can afford the red tape involved in prevailing wage studies.

In 2017, Michigan published more prevailing wage classifications (over 500,000) than there are actual construction workers. In fact, more than triple. The idea that we have a system where government and HR staff have to manage such an insane system could not be a better example of a regulatory bottleneck to production and job creation.

Dave Waymire of Protecting Michigan Jobs rejects the very premise of cost savings, and says, “States that have repealed prevailing wage laws haven’t saved taxpayers a penny but they’ve driven down the wages of middle-class workers.”

However, studies have shown that Michigan would have saved almost $130 million annually in school construction alone over the past 10 years without the prevailing wage mandate. Michigan suspended prevailing wage from 1994 – 1997. A study conducted shortly thereafter by the Mackinac Center for Public Policy found school construction costs were reduced by 10%-16% during that three-year period, with an increase of 11,000 construction jobs.