What is the difference between prevailing wage and union wages

Burlington, Vt. This book presents empirical evidence on the effects of prevailing wage laws on government costs and examines whether the laws have broader social costs or benefits.

Experts on prevailing wages in the construction industry contributed chapters on construction costs, retention of a skilled workforce, occupational safety in the construction industry, pensions and benefits, and the impact of the repeal of prevailing wage laws on demand for public assistance. Belman, Dale, and Paula Voos.

Belman and Voos found that the direct costs of repealing prevailing wage regulations outweighed the presumed savings in Wisconsin. The authors question whether the savings would fully transfer to the government, however, citing evidence that contractors would pocket more than two-thirds of the savings. Bilginsoy, Cihan, and Peter Philips. Bilginsoy and Philips conducted a six-year analysis of the British Columbia prevailing wage law, established March 30, Half of the sample of 54 new public school construction projects commenced before the law went into effect, and half began afterward.

However, the results show no statistically significant increase in costs once business cycle, type of building, the number and size of the contractors, regional dummy variables, and time trends are factored in. Center for Government Research. Rochester, N. However, the study did not empirically test whether the increase was related to prevailing wage regulations.

CGR assumes that the wage differences fully transfer in government costs. The model compared prevailing wage rates with the market rates of construction occupations in several metropolitan areas in New York and several others across the country. The study then compared labor costs to total construction costs using a prototype project, or a model created to mimic typical construction costs.

It then applied the markup rates to total construction costs. The calculation assumed that productivity, material costs, and the labor share of construction remained constant.

Department of Fiscal Services. Annapolis, Md. The sample included 20 new and renovated school construction projects in and , 14 of which were built under prevailing wage laws. But this first statewide study of prevailing wage laws and construction costs in Maryland was later found to have methodological problems regarding a small sample size and the lack of controls for new and renovated projects see Prus In a study of prevailing wage laws and construction costs in the low-income housing sector, the authors used econometric approaches to measure the effect of prevailing wage laws on final project costs across California.

The sample of subsidized housing projects undertaken from to included a control group of 30 projects that were not subject to prevailing wage laws. Construction data were collected on projects approved and completed over a five-year period through May 1, Prevailing wage rates were paid on of the new public housing projects, although there was no attempt made to specify whether projects paid federal, state, or local prevailing wages.

In California, some public housing construction was exempt from the statute, so prevailing wages were not paid on 30 of the projects. In the model preferred by the authors, instrumental variables IV were used to control for endogenous factors that affected prevailing wage laws across regions.

The information for this variable was extracted from voter registration information, union membership, homeownership, age, and income data. The authors reasoned that political influences and economic conditions were likely to affect whether a region adopted prevailing wage legislation.

The conclusion reports the range of results, rather than a confidence interval on the preferred model. Fraundorf, Martha, and Mason Farell. In the first econometric study of prevailing wages and federal construction costs, the authors used construction data they had collected in and from in-person interviews with contractors working on new non-residential buildings in rural areas across the country. About half of the projects were federally funded and built under the Davis-Bacon Act, and the remainder were private construction projects.

The results showed that public projects—all of which were subject to the Davis-Bacon Act—were generally The authors acknowledged that the estimate of Subsequent research Prus determined that the authors had inadvertently excluded a key variable controlling for public versus private projects.

Consequently, they had captured the differences between public and private costs, but were not able to isolate the effects of prevailing wage laws. General Accounting Office. Washington, D. This study has been widely cited as evidence against prevailing wage laws, despite later criticisms over its methodology. The GAO argued that the Davis-Bacon Act should be repealed because it was inefficient and unnecessary and raised federal government costs by several hundred million dollars a year.

In a sample of surveys collected on 30 federal projects, wages paid were higher than the prevailing rates in 12 of the projects, and lower in others. The GAO targeted the projects with higher wage rates to show a 3. The study based its findings on simple accounting to show hypothetical savings from the repeal of the Davis-Bacon Act, but it was not able to establish a causal link between prevailing wage laws and government costs.

The GAO acknowledged that the sample size was insufficient to calculate construction costs with any statistical validity. However, it stated that the random nature of the sample was representative of federal construction. Boston, Mass. This paper argues that the Davis-Bacon Act should be repealed on grounds that the wage determinations set by the Department of Labor DOL do not reflect the true wage prevailing in a local area.

This difference was then applied to the federal budget to estimate a 9. The authors attributed the wage differences to unrepresentative surveys and measurements that resulted in an upward bias in wage estimates. Gujarati, D. The author based this finding on wage determinations from counties from to The implication of the findings was that the Davis-Bacon Act inflates total contract costs because it favors union contractors who pay higher wages to workers.

This study does not reflect the current decision-making process at the Department of Labor, nor does it reflect the present composition of unions in the construction industry. Keller, Edward, and William Hartman. Journal of Education Finance. This study examines the differences between wages paid on public and private construction contracts. It does not empirically observe how these costs would be passed through, but it assumes that lower wage costs would mean lower government costs.

Additionally, the authors calculated societal impacts of better pay and benefit packages for workers under prevailing wage laws. The impacts for states without prevailing wage laws include the entry of smaller, less-experienced construction firms into the construction market; higher rates of employee turnover raised the risk that firms might hire unskilled workers more prone to injuries.

Kersey, Paul. Midland, Mich. This report updates the previous Mackinac study but did not address the various criticisms over methodology. Kessler, Daniel, and Lawrence Katz. The authors examine the time trends of the repeal of state prevailing wage laws on union and race characteristics in construction labor markets. Kessler and Katz use Census and Current Population Survey data and a fixed-effects econometric approach to analyze wages and unionization rates over time. The model compares relative wages for blue-collar construction and non-construction workers in repeal and non-repeal states over a year period.

The results suggest the repeal of prevailing wage laws negatively affects union and white workers, while it may benefit black construction workers. This study is limited to an analysis of wages and does not include total construction costs in the empirical model.

The repeal of prevailing wage laws was found to reduce worker earnings, cut worker training programs, increase occupational injuries, and increase cost overruns. These findings were based on an examination of the effects of prevailing wage laws in nine states that had repealed the legislation, nine other states that never had the legislation, and 32 states with prevailing wage laws. In the case of Utah, declines in training produced a substantial shift to low-skilled workers, declining productivity, and a tripling in cost overruns compared to the previous decade.

Philips, Peter. This study demonstrated that square foot construction could be less expensive in prevailing wage states compared to states without prevailing wage laws. The study took a cross-section of government construction projects across the Intermountain and Southwestern states, five of which had prevailing wage laws and four of which did not.

The data were disaggregated based on building type: offices, warehouses, elementary schools, middle schools, and high schools. The results show that productivity may have played a major role in construction cost outcomes and that it can offset potential wage increases. Productivity could explain why a higher hourly wage on school construction in the Northeast did not result in higher total labor costs. However, total labor costs were the same in the South and Northeast, despite the hourly wage differences.

Kansas and Prevailing Wage Legislation. In this case study, school construction costs, worker wages, and other societal costs were examined before and after the repeal of prevailing wage laws in Kansas and compared with other Great Plains states. Philips used statistical methods to compare mean and median costs of new schools in Kansas and surrounding states from July to June Of new elementary schools in the Great Plains states with prevailing wage laws, construction costs were not statistically different from zero controlling for other cost factors.

Average construction earnings fell faster in Kansas and other surrounding states without prevailing wage laws after the repeal. The loss of earnings would have resulted in lost tax revenues to the state. Apprenticeship training programs declined in Kansas and surrounding states without prevailing wage laws from to Philips compared the number of injury cases per worker from to using the Bureau of Labor Statistics industry survey of occupational injury and illness.

Department of Labor for the years and Philips attributes this drop to the shift away from collective bargaining following the repeal in Kansas. Prevailing wage laws in Kentucky provided a unique sample because some projects were exempt from the law until it was reinstated in Kentucky did not repeal its law, but it exempted school construction from the statute. In , schools and some city projects were exempt from the prevailing wage statute.

In , it expanded its law to include public schools and most local and county construction projects. The study was in response to charges that prevailing wages discriminate against minority workers and arguments that the legislation reduced the number of entry-level jobs.

Philips used statistical methods to analyze the relationship between prevailing wage laws and the racial composition of the construction industry.

The results showed no measurable relationship between unemployment rates by race in construction and state prevailing wage laws. This study takes advantage of a natural experiment with the judicial suspension of the prevailing wage law in Michigan , the adoption of prevailing wages for school construction in Kentucky , and the repeal of prevailing wages for school construction in Ohio About half of the new schools in the sample were built under prevailing wage legislation in those three states from to The study accounted for the problem of building costs climbing faster than inflation during the s, and included controls for rising construction costs for new public schools in all three states from to The results showed that prevailing wage regulations did not raise construction costs with any statistical significance.

Other findings showed that urban schools cost Ohio schools cost Four Biases and a Funeral: Dr. Economics Department, University of Utah. Examining a study by the Mackinac Center for Public Policy, Philips discovered that the data and structure of the methodology led to internal and external validity problems.

Four primary biases were produced by the Mackinac research design, including the fact that results did not hold in other states. The biases were listed as the selection of month-long time periods, a seasonal adjustment that did not reflect construction industry patterns, employment adjustments based on unseasonably warm weather on the end points of the data, and the inability to replicate the results in other states.

It also declined in Oklahoma, where the law was judicially annulled, and in Ohio, where school construction was exempt from prevailing wages. In Kentucky, where the law was applied to schools in July , employment increased. Productivity was found to play a major role in explaining why less expensive labor does not always result in lower government construction costs in the absence of prevailing wage laws. Using Census of Construction data, Philips compared average annual incomes of construction workers and the value-added per construction worker by state.

Workers in states with prevailing wage laws earned more income, but they also had higher productivity. The result showed that prevailing wage laws raised productivity, possibly by inducing better management of projects, higher training standards, and more capital investment. Prevailing wage laws also promoted collective bargaining activities that encouraged apprenticeship programs necessary to improve workmanship and expand the pool of skilled workers.

On the other hand, 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 would cut corners on safety, training, and payroll regulations in an attempt to offer lower bids. In Iowa, an estimated 2, workers were misclassified as independent subcontractors in order to save on payrolls.

The misclassification of workers deprives the state of worker compensation and unemployment insurance payments, and allows the contractor to dodge health insurance, pension, and Social Security contributions. Prus, Mark. People often use one of three terms when discussing wages: minimum wage, prevailing wage, and living wage. Minimum wage is the most widely recognized term in the realm of employee compensation. It is the lowest allowable rate of pay at which an employee may sell their work.

The concept of minimum wage was developed in the early 20th century to prevent unethical employer practices, such as sweatshops where the wage was disproportionately low compared to the work.

Although New Zealand was the first country to legislate a national minimum wage, nearly other countries and territories have set minimum wages for employees. In addition to the minimum wage mandated by the U. Minimum Wage Management. Employees in the U. According to the U. Department of Labor, an employee is entitled to the higher of the two minimum wages. Click here to learn more. If you are bidding on a contract or already working for a government entity, there are specific requirements to ensure compliance with the Davis-Bacon Act.

One of the requirements is the concept of prevailing wage. State laws are different from federal laws. So, it is essential to understand the difference between these laws. According to the Davis-Bacon Act, contractors and sub-contractors must pay their workers employed under contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. These federal laws affect state and local projects funded partially or wholly by federal funds.

Here are some things to know about federal prevailing wage laws:. It is sometimes called the Little Davis-Bacon law. These laws set thresholds for salary requirements. As with federal law, states with prevailing wage laws only apply to construction and specific jobs. Contractors and subcontractors may think that prevailing wage laws do not apply to them because their project is not funded by the federal government.

However, many states have prevailing wage laws that cover state-funded public projects , such as public buildings and roads. State prevailing wage laws differ in their requirements, such as:. Payroll is the nucleus of the workforce. Suppose you are a contractor or subcontractor for a project funded partially or wholly by the federal government. In that case, you must understand all state and federal prevailing wage laws to correctly submit your certified payroll to the U.