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Tuesday, July 28, 2009

The Akron Beacon Journal recently ran an article on union labor and school construction projects in Ohio. One Akron school project, Leggett Elementary, is running over budget, costing 22 percent more per square foot than other area school projects. The source of the cost difference is easily identified:

Leggett is the only school project to date that has required contractors to pay prevailing union wages and to provide union benefits and working conditions in an arrangement known as a ''project labor agreement,'' or PLA.
In 1997, Ohio's legislature repealed the state's prevailing wage requirement on school construction costs. The Ohio Legislative Service Commission's 5-year analysis on the bill is available here.

Prevailing wage laws were instituted to protect construction workers from out-of-state competition, typically black workers from the southern states. These laws set a minimum wage for the construction industry on projects performed for the state or federal government. In many prevailing wage states, the “prevailing” wage has customarily been set to the regional union wage for each worker classification. This practice continues even though union membership has declined from 39.5% in 1973 to 15.6% in the construction industry nationwide.

Prevailing wage laws proclaim the wages earned by 15.6% of the industry's workers to prevail. Dictionary.com defines "prevail" as "to be widespread or current; exist everywhere or generally; predominate." Unions wages obviously do not "predominate" in the United States. The site offers the following alternative definitions:
  • to be or prove superior in strength, power, or influence
  • to use persuasion or inducement successfully
These definitions are better suited to union influence over prevailing wage laws.

Getting back to Leggett Elementary, city officials support the use of a PLA because it provides work for more residents. However, this increased employment is necessarily funded through increased taxes. The jobs lost by these taxes are incalculable, and therefore, easy to dismiss. Henry Hazlitt states in Economics in One Lesson:
As a character in Bernard Shaw's Saint Joan replies when told of the theory of Pythagoras that the earth is round and revolves around the sun: 'What an utter fool! Couldn't he use his eyes?'

If taxes are taken from individuals and corporations, and spent in one particular section of the country [or state], why should it cause surprise, why should it be regarded as a miracle, if that section becomes comparatively richer?
In Pennsylvania, prevailing wages (i.e. union wages) are 37% higher than market wages for the same work, adding nearly 17% to the total project cost. The Pennsylvania School Board Association (PSBA) has pushed the state’s legislature to exempt school construction from prevailing wage requirements, but proposals are always tabled in committee before reaching the floor for a vote. Using estimates from the PSBA, exempting school construction would have saved $375 million from 2002-2006 or $75.2 million per year.

Using the most recent data available (2005-06), Pennsylvania taxpayers would save over $1.4 billion each year on all public construction projects by repealing the state’s prevailing wage law. According to a Right to Know Law Request through the Pennsylvania Department of labor and Industry, 6,622 predeterminations for prevailing wage projects were issued in 2007 for a total estimated cost of more than $59 billion. Assuming that ten percent would have been covered by the federal Davis-Bacon Act, repealing Pennsylvania’s prevailing wage law would have saved $8.9 billion for construction projects receiving state funding approved in 2007.

Posted by Eleutherian

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  1. Anonymous Says:
  2. Great post and analysis of prevailing wage laws on construction costs.

    FYI, as a rule of thumb - you can throw logic and reason out the window when you deal with public policy that enriches politically connected construction labor unions. They tend to get their way when Democrats are in power.

    You wrote about project labor agreements (PLA)briefly. It is another item on the union priority issue list right next to preserving and expanding prevailing wage laws. I would argue that a PLA is just as responsible for the cost increases on the Leggett school as the PW mandate, if not more.

    PLAs mandate obscure and inefficient union work rules via union collective bargaining agreements contained within typical PLAs. Union contractors still can't compete with efficient non-union contractors when prevailing wage and benefits rates are mandated and held constant.

    So unions invented PLAs as a slick way to cut competition from non-union competition without it being outright illegal by forcing the union work rules and business model on non-union contractors and workers. The result is reduced competition from the largest sector of the construction industry/bidding pool and increased labor efficiency costs.

    You should apply logic and reason to the PLA debate and write an additional post investigating PLAs. You will be amazed at its Alice in Wonderland economic principles.

    www.TheTruthAboutPLAs.com is a good starting point on the issue.

    See: http://www.thetruthaboutplas.com/2009/07/24/akron-school-board-approves-plas-on-future-school-projects/



  3. Anonymous Says:
  4. you are totally fukked up in the head. prevailing wages benefit non-union workers too by raising the bar for everyone! the work is hard , and obviously you never had a blister on ur pink little hand from. i am a union carpenter for 20 yrs, so you go do that hard labor in the hot sun for 7 bucks an hour, ya cheap wank. carpenters gave you the 5 day work week you should be kissing my as!

  5. Anonymous Says:
  6. elaine chao is gone, you cry babies need to pick on somebody that makes a lot of money , not a poor working stiff trying to make a living off the sweat and muscle of actual work. why don't you get a life and pick on somebody that's really sucking the system dry like health care??? paulie the carpenter


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