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Analysis of studies cited by advocates of prevailing wage repeal highlights massive social costs

Madison:  While critics of Wisconsin’s prevailing wage law have long claimed that repeal would save money by cutting the wages of blue-collar construction workers, a Midwest Economic Policy Institute (MEPI) analysis of two reports frequently cited to support the claims of prevailing wage critics shows that repeal could actually cost Wisconsin taxpayers over $300 million each year.

Read the Report, entitled “The Social Cost of Repealing Wisconsin’s Prevailing Wage Law” here.

For its study, MEPI examined how construction wage cuts would affect overall state tax revenues and reliance on five different government assistance programs utilizing the Wisconsin Taxpayers Alliance’s recent claim of a 44% cut, and a 2015 Wisconsin Legislative Fiscal Bureau analysis that suggested repeal of prevailing would reduce wages by 14.1%.

“If an entire segment of Wisconsin’s blue-collar workforce faced a wage cut of 14% to 44%, it would mean thousands more Wisconsin workers would be on government assistance, and Wisconsin’s state government would have significantly less tax revenue to pay for these benefits,” said MEPI Policy Director Frank Manzo IV.  “Using the wage cut figures promised by the law’s critics, we can assess that prevailing wage repeal would impose a potential social cost to Wisconsin taxpayers of hundreds of millions of dollars each year—without producing any real savings in total project costs.”

The current average wage for skilled construction workers, on which MEPI’s analysis is based, is $51,600 per year.  The 44% wage cut claimed by the Wisconsin Taxpayer Alliance would reduce this average to less than $29,000 per year for those employed on public works projects.  This would leave affected construction working families of four eligible for well-over $16,000 per year in government subsidized health, food and heating assistance, plus another $5,000 per year in Earned Income Tax Credits (EITC).  The reduction in wages would also reduce their state and federal income tax payments by an average of $4,800 per year, for a potential annual social cost of more than $26,000.  Similarly, a 14% wage cut would result in a potential social cost of over $17,000 per year for a family of four.

Extending these projections further, MEPI’s analysis shows that prevailing wage would increase the percentage of families of four with a skilled construction worker who qualify for some form of government assistance from 10% to as high as 22%.

Prevailing wage functions as the local market minimum wage for different types of skilled construction work on publicly-funded projects.  Most research has concluded that prevailing wage laws do not increase total construction costs, because they attract higher skilled local workers and result in higher productivity, more efficiency, fewer safety problems and less waste on jobsites.

Repeal of prevailing wage has also been found to reduce apprenticeship training by about 40%. In Wisconsin, 95% of all apprenticeships are funded privately by joint labor-management programs supported by prevailing wage. As the nation recognizes “Workforce Development Week,” lawmakers in Wisconsin should acknowledge the significant social cost of reducing worker training if prevailing wage is repealed.

While repeal of prevailing wage laws are associated with lower wages, less local hiring, fewer apprentices, and weaker overall economies, research has consistently shown that they do not result in taxpayer savings.  Instead, research shows that lower wages are offset by increased spending on fuels, materials, equipment, purchased services, and increased spending on public assistance for construction workers.

For example, after voting to repeal Indiana’s prevailing wage law back in 2015, the Indiana’s Assistant House Majority Leader Ed Soliday recently told a group in Milwaukee that repeal “hasn’t saved a penny.”  And while the Wisconsin Legislative Fiscal Bureau predicted prevailing wage repeal would reduce wages by 14%, it also concurred with the existing research on the impact of prevailing wage on total project costs, saying they ranged “from small effects to no statistically significant effects.”

“Instead of disputing the flawed methodology inherent in the claims that prevailing wage repeal reduces total project costs, our goal was to highlight the fact that imposing wage cuts on blue-collar workers in the private sector translates to significant public costs for taxpayers,” said MEPI Study Co-Author Jill Manzo.  “The bottom line is that taxpayers will not save from the repeal of prevailing wage–they will subsidize.”

The Midwest Economic Policy Institute (MEPI) is a nonprofit organization which supports research and provides timely, candid, and dynamic analyses on major subjects affecting the economies of the Midwest, specializing in the construction industry. MEPI evaluates and generates public policies that empower individuals, policymakers, and lawmakers to make a positive impact.

Click here for the full report.

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