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MANZO: Construction wage repeal hasn’t delivered as promised

March 2, 2018

manzo-frank-viewpointIn 2015, Indiana politicians insisted that they could save “between 10 percent and 20 percent” on the cost of schools and other public works, while “opening doors of opportunity” by repealing the state’s prevailing wage law– known as the common construction wage. 

It looks like they were wrong.

New research from the Midwest Economic Policy Institute and Colorado State University economist Kevin Duncan has found that repeal of Indiana’s prevailing wage law has not only shrunk wages and increased income inequality, it has failed to make construction projects any cheaper.

Enacted in the 1930s, Indiana’s common construction wage created local-market minimum wages for different types of skilled construction work. Its purpose was to ensure that contractors competing for state projects did so based on core construction competencies, as opposed to who could pay workers performing dangerous and difficult jobs the least. This minimized the risk of shoddy work, put local businesses on a level playing field with firms from out of town, and helped the industry recruit and retain a stable supply of skilled workers—each of which were significant problems at the time.

Now, Indiana has new problems.

According to publicly available data, in the 18 months following repeal, the state’s average hourly construction pay dropped by 8 percent. Wages for the lowest-paid Hoosier construction workers have dropped by 15 percent. Looking at northern Indiana’s 335 school construction projects from 2013-2017, we found that there was no statistical difference in average school construction costs following repeal. 

Or, in the words of Assistant Indiana House Floor Leader Ed Soliday, “It hasn’t saved a penny.”

To understand how pro-repeal politicians could have been so wrong, it is important to consider the underlying dynamics of the construction industry. First, blue-collar wages and benefits only account for around 20 percent of total project costs. It is simply not mathematically possible to wage-cut your way to the project savings that were promised.  

Second, lower construction wages attract lower skilled workers. This translates to less efficiency on the jobsite and a less-productive workforce. Both outcomes are costly.

This is precisely what has happened in Indiana. Since repeal of the common construction wage, the percentage of construction workers without a high school diploma has jumped 4.5 percent, and employee turnover has increased. As a result, the state’s construction workforce productivity lagged more than 5 percent behind neighboring states with strong prevailing wage laws. 

Notably, the data from northern Indiana school construction projects showed that prevailing wage repeal had no effect on the union share of the construction market. However, by removing the wage floor for those workers not otherwise covered by collective bargaining agreements, there is no question that repeal has hurt Indiana’s non-union construction workers the most.

On the question of job creation more broadly, our research parallels prior studies that have linked the local-market standards reflected in prevailing wage laws with higher rates of local hiring. For example, when Indiana started weakening its prevailing wage law in 2012, its southern-most counties saw hundreds of public works jobs leave the state. Since repealing common construction wage in 2015, that trend has continued. Indiana has seen its public works construction job growth lag behind neighboring states with prevailing wage laws.

Ultimately, the research reveals that repeal of the common construction wage has failed to deliver for Indiana taxpayers and the economy. Instead, it has shrunk wages, eroded standards of workmanship, and slowed industry job growth. 

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Manzo is the policy director of the Illinois Economic Policy Institute.

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