Study: Prevailing Wage Costs Taxpayers, Schools $224 Million Per Year

It may seem obvious that mandating higher costs on construction projects means they will cost more, but that's still a subject of debate in Michigan.

A new study from the Anderson Economic Group out of East Lansing confirms that the state's prevailing wage law imposes a large cost on taxpayers.

The report found that Michigan's prevailing wage law costs taxpayers, public universities, community colleges and school districts an extra $224 million per year. The law has been on the books since 1965 and essentially requires all construction firms doing work for the government to pay union scale wages and follow union work rules.

Sen. Arlan Meekhof, R-West Olive, has introduced several bills that would repeal the law. Senate bills 157, 158 and 159 all have 15 co-sponsors but have not yet been taken up.

“Prevailing wage costs the taxpayers of Michigan millions of dollars each year," Sen. Meekhof said. "It’s time we repealed this law and let the market decide what wages should be paid.”

These mandates apply no matter how few construction workers in the state are unionized. The U.S. Bureau of Labor Statistics reports that only 13.2 percent of construction workers across the country belong to a union. The website Unionstats.com, a project of professors Barry Hirsch of George State University and David Macpherson of Trinity University, finds that only 18.8 percent of Michigan construction workers are unionized.

"The findings add to the mounting evidence about the wastefulness of prevailing wage and provide further support for repeal of the law," said Chris Fisher, president of Associated Builders and Contractors of Michigan, which commissioned the study. While ABC, which represents non-union construction workers, has long been against government carve outs in favor of unions, the Anderson Economic Group has done studies for groups across the political spectrum including for the Michigan Education Association.

Other studies support the findings: A 2007 report from the Mackinac Center for Public Policy conservatively estimated that repealing prevailing wage in the state would save taxpayers $250 million annually.

The AEG study notes that the money saved would mean an additional 315 elementary school building could have been built in the past decade.

"Not only is the law costly and outdated, but it denies local choice to school and university leaders who are entrusted by citizens to wisely manage financial resources," Fisher said. "Prevailing wage requires the public to pay artificially high wages on state-backed construction projects, reducing money for other vital needs with no return on investment for such unjustifiable cost overruns."

Besides the Senate bills, several bills sitting in the House would repeal the law. House Bill 4172, sponsored by Rep. Amanda Price, R-Holland, would repeal the law completely. House Bill 4173, sponsored by Rep. Peter MacGregor, R-Rockford, facilitates the repeal. House Bill 4174, sponsored by Rep. Brad Jacobsen, R-Oxford, would exempt schools from the current law.

Several local townships have long had their own prevailing wage laws and are repealing them because of the expense. Last year, Bay City and Eaton County threw out their prevailing wage ordinances while Saginaw considered it.

The study notes that Michigan is among only seven states with a similar law while “the other 43 states either have no such mandate or more fairly and accurately determine wages based on an actual sampling of construction workers.”

If the law was repealed, local governments and educational units would be free to pay whatever they negotiated for a project. They would simply not be mandated to pay a set wage. Savings could be used for other projects, salaries and benefits, roads, or given back to taxpayers.

The full study on Michigan's prevailing wage law is available at www.PrevailingWageTruth.com.