Prevailing wage repeal would hurt the Michigan economy

Kevin Duncan and Alex Lantsberg

Would you support cost-neutral legislation that would eliminate thousands of jobs, force thousands more onto public assistance, suppress economic growth, export hundreds of millions of dollars out of Michigan, necessitate additional cuts to vital public services and undermine the quality of our public highways, bridges, hospitals, and schools?

Of course you wouldn’t.

And Gov. Rick Snyder has made it clear that he will not either.

But that isn’t stopping a few financially motivated special interests from launching a petition drive to try and circumvent the governor and force those outcomes on Michigan taxpayers by repealing the state’s prevailing wage law through “citizen initiated legislation.”

The argument these repeal proponents make—and one that has long been rejected by reams of peer reviewed research and leaders of both political parties—is that cutting the wages of the skilled professionals who build our public infrastructure saves money.

Problem is, it doesn’t. And there is absolutely no consistent evidence to suggest otherwise.

A comparison of prevailing wage and non-prevailing wage states shows that any savings from lower wages are immediately offset by lower worksite productivity and far more spending on fuels, materials, equipment and other services, a direct result of the fact that prevailing wage states rely more on home grown talent and higher skilled professionals to get the job done right the first time.

But the real consequences of prevailing wage repeal extend far beyond the provably false promise of cost savings.

Other studies have chronicled a range of other problems, from more injuries to lower quality workmanship. Just-released research from the Midwest Economic Policy Institute and Smart Cities Prevail quantifies the effect on the economy as a whole.

Using data from the Economic Census of Construction to compare the cost and construction spending differences between prevailing wage and non-prevailing wage states, we utilized industry standard IMPLAN software to model the economic impact of this proposed policy change.

We found that prevailing wage repeal would eliminate over 11,300 jobs and $1.7 billion in economic activity statewide, and result in a loss of $28 million more in state and local tax revenue.

The data is clear. In non-prevailing wage states, more work goes to out of state contractors. In Michigan’s case, this would translate to about $700 million in construction dollars leaving the state every year. This loss of investment coupled with less consumer spending by now poorer construction households would ripple throughout the state’s economy, leading to fewer jobs and less activity across all economic sectors.

This drags down the sales and property tax revenue that help finance schools, law enforcement, and other vital public services.

No less important are the “hidden costs” that repeal could impose on taxpayers—costs that don’t find their way into project bids.

A recent study in California highlighted that the average non-prevailing wage construction worker would qualify for as much as $8,000 per year in taxpayer funded social assistance programs. Without prevailing wage laws, contractors don’t pay that bill, you do.

These facts help to explain why—at a time when Americans seem to agree on very little—there has long been broad support for prevailing wage. On the right, Gov. Snyder, Rep. Paul Ryan, Former Senator Rick Santorum, President Ronald Reagan, and many more. On the left, President Barack Obama and both of Michigan’s U.S. Senators. And recent polling shows these sentiments are shared by 60 percent of Michiganians, including pluralities of every ideological persuasion.

By most accounts, Michigan’s economy has come a long way since the depths of the Great Recession. There is much work left to do, but we urge Michiganians not to undermine this progress. The data clearly shows that repeal of prevailing wage would do just that.

Kevin Duncan is a professor of economics in the Hasan School of Business at Colorado State University–Pueblo and Senior Economist at BCD Economics, LLC.

Alex Lantsberg is a researcher with Smart Cities Prevail and a member of the American Institute for City Planning.

Write us: letters@detroitnews.com