A new evaluation of impacts of prevailing wage law repeal

A New Evaluation of Impacts of Prevailing Wage Law Repeal *

A. J. T H I E B L O T

Consulting Economist, Baltimore, Maryland 21201

A recent academic study claims that repeal of the Davis-Bacon Act, the federal prevailing wage law covering construction of public works, would cost more in lost taxes than could be recovered in lower construction expenditures and would also result in an increased number of construction injuries and deaths. Those claims are not supported by the facts. Indeed, the opposite is true. The facts support savings to the federal government from repeal of Davis-Bacon in excess of $1.5 billion annually, and, if anything, a lower rather than a higher frequency of construction injuries. Furthermore, states still having prevailing wage laws would also realize significant savings from repeal. Aggregate savings from eliminating all prevailing wage laws could exceed $4 billion a year.

I. Introduction

The Davis-Bacon act is the federal prevailing wage law for the construction industry that requires workmen employed by contractors on public works in which the federal government has active involvement to be paid at least the wage rates and fringe benefits found by the Department of Labor to be "prevailing" for similar work in or near the locality where the contract is to be performed. ]

Most states passed similar laws, so that by 1975 they existed in 41 states. About that time, a movement to eliminate or modify them began and, as it progressed in legislatures and courts during the 1980s and early 1990s, ttle laws of nine states were repealed and that of another was declared unconstitutional, Congress also came under increasing pressure to do something about Davis-Bacon. 2

The momentum of the repeal movement was shaken in early 1995 by the release over the Internet of a new study of prevailing wages which seemed to stand conventional wisdom about the impact of repeal on its head. 3 This study, authored by Peter Philips, Garth Mangum, Norm Waitzman, and Anne Yeagle, all of the University of Utah, used multiple regression analysis and other statistical tools to demonstrate a negative economic and social impact from repeal of prevailing wage laws at both federal and state levels. Among its findings were that as a consequence of repeal governments would lose up to $1.5 billion more in tax receipts than they could save in lower construction costs and that repeal would be responsible for billions of dollars of costs associated with additional injuries in the industry.

JOURNAL OF LABOR RESEARCH Volume XVII, Number 2 Spring 1996

298 JOURNAL OF LABOR RESEARCH

The Utah study's unexpected results, contradicting those of substantially all pre- vious researchers of this topic, invited further analysis - - especially since they were being used to influence public policy. 4 So this article's first intention is to evaluate the merit of the main economic conclusions of the study. This process is tedious, but not entirely negative, for some of the statistical techniques advanced there can be used to provide new estimates of the actual economic impacts of prevailing law repeal.

II. Synopsis of Major Conclusions of Utah Study

The Utah study derives conclusions from massive regression analyses (data sets of more than 27,775 data points) and from other sources such as anecdotal evidence, economic reasoning, and examination and manipulation of time series data on employment and earnings. Statistics are derived from repeal of the Utah prevailing wage law in 1981 or from the repeals (nine in number) in all the states that eliminated prevailing wage laws between 1979 and 1987. These are projected to the national level to anticipate the impact of repeal of the federal Davis-Bacon act.

The following is a brief summary of the study's three major economic conclusions, each of which is discussed below:

1. Repeal drives wages down. Aggressive competitive patterns brought on by repeal drove wages down below market for all construction workers, not just those on state-financed jobs. Average earnings fell $1,835 per worker in real terms (as denominated in 199l dollars) in Utah and the eight other states where prevailing wage laws were repealed. 5

2. Government does not break even. For Utah's 1991 employment figures and state tax rates, decreased construction worker earnings resulted in lower tax revenues to the state of $6.8 million. 6 On the federal level, repeal of Davis- Bacon would lower federal income tax collection by $1 billion to $2 billion in real terms, more than what could be made up through lower building costs.

3. Repeal causes injuries. Repeal of prevailing wage laws cost additional injuries to construction workers in repeal states which, on a national basis, would amount to 76,000 additional workplace injuries per year (and 130-150 additional deaths), leading to greater workers' compensation costs of $3 billion per year, of which $300 million would be passed on to the federal government as increased costs on public works.

In addition to these main conclusions, there are many other assertions in the Utah study. Repeals are said to lead to a less skilled construction work force, lower work force productivity and increased cost overruns, a shift towards newer, smaller, less competent contractors, greatly decreased construction training, lower minority representation in training programs, and an increased use of expensive change orders.

In sum, the Utah study maintains repeal of prevailing wage laws was or would be an unmitigated disaster, negatively affecting construction companies, union and nonunion construction workers, taxpayers, and government purchasers. Repealing them would save so little that the savings would be exceeded by tax losses even if

A. J. THIEBLOT 299

they were not offset by cost overruns. The country would suffer from having to make up the tax losses and from absorbing large new costs associated with workers' compensation claims and an increased accidental death rate, etc. At certain anticipated savings and cost rates, the study concludes, repeal of Davis-Bacon might carry a net cost of $4 billion to $5 billion per year.

This is a highly anti-intuitive result, since one would not expect society to become unglued simply because government desisted from requiring contractors to pay their workers above-market wages. It is so contrary to expectations, indeed appearing to run counter to the laws of supply and demand, that each aspect requires attention. Because of space limitations, however, I shall concentrate here on the three main ones highlighted above.

1. Repeal Drives Wages Down. The Utah study asserts that repeal of the prevailing wage law in 1981 drove construction wages down in Utah, not only for union workers, but for all construction workers. The mechanism of the falling wages is hypothesized in three steps: first, repeal reduces the competitive advantage of union contractors - - generally the larger, more experienced, and better capitalized firms - - and therefore decreases their number and the number of their union employees; second, a larger number of smaller, weaker contractors springs up to replace the existing union firms and compete for government work; third, the increased competitive pres- sures produce "cutthroat competition" and an "overheated bidding process" in which "low-bailing contractors .... bid jobs down" across the board, thereby lowering wage rates below the market level. 7 In this way, the study says, Utah construction worker earnings, which averaged about 125 percent of average nonagricultural earnings in the 12 years before repeal, fell to 103 percent by 1993, 10 years after repeal.

The problem with this analysis is that it is almost totally incorrect. First, the economic theory is wrong. Supply and demand of anything, including labor, are related by price - - set by the combined self interests of buyers and sellers. New demand for an existing supply always causes the clearing price to rise or the quantity supplied to increase. 8 It cannot result in "bidding wages down" below the market rate. Suppose a contractor who wins a post-repeal government building project needs to add to his work crew. If enough workers are available and willing to work, he hires them, paying what they're willing to work for - - the definition of the market rate. 9 (He cannot pay less, because they will not work for it, and he need not pay more.) If, however, enough workers are not available at the market rate, he can induce them to work only by offering rates that are higher than market. 10 So the Utah study is wrong in theory.11

It is also wrong with respect to the facts at any level: Repeal did not result in larger firms being replaced by smaller ones; the number of contractors competing for work in Utah after repeal decreased rather than increased so competition decreased rather than increased; and, despite the study's repeated assertions to the contrary, average construction wages did not fall after repeal, but rose.

300 J O U R N A L O F L A B O R R E S E A R C H

Figure 1 is a plot of the number of contractors in Utah in the four years preced- ing repeal of the prevailing wage legislation there in 1981 and in the four years thereafter. As seen there, the number of contractors actually fell after repeal, while the number of employees per firm increased, the opposite of what the Utah study asserts. These data show no evidence of cutthroat competition following repeal. Nor do they support the contention of lower construction earnings. Figure 2 is a plot of average monthly construction wage rates for the 10 years before and after repeal showing somewhat slower growth rate in the early 1980s than had been the case during the boom years of the late 1970s, but no earnings decrease. Furthermore, the earnings pattern follows that of other Utah employees during this time period and so cannot reasonably be attributed to repeal of prevailing wages. Average monthly earnings for employees in retail trade in the state are plotted in Figure 2 for qualitative comparison with the construction earnings pattern. 12

Since average construction wages did not, in fact, decrease in Utah across the period of prevailing wage repeal, 13 the decrease cannot be attributable to increased competition, whether excessive or not, which in any event did not increase. There- fore, there is no need to invert economic theory to accommodate the effect, since it did not occur.

This leaves one final aspect of the Utah study's chain of logic to be analyzed, the assertion that average construction wages fell with respect to average wages in other fields as a result of prevailing wage repeal. We shall see that although average construction wages did fall with respect to others, it is highly unlikely that the fall was the result of prevailing wage repeal, since relative construction wages fell simi-

5

4

3

2

1

0 1977

Figure 1

Number and Size of Utah Contractors, t977-1985

s ~ ~

Contractors (in thousands)

REPEAL

1978 1979 1980 1981 1982 1983 1984 Year

Source: Utah Department of Employment Security

1985

A. J. THIEBLOT 301

2000

Figure 2

Average Monthly Earnings, Utah, 1971-1991

1600

1200 o = E

800

400

0 1971

y Construction Workers

Retail Trade Employees

REPEAL

i i I i r i i I I i i I i i i i i i i

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 Year

Source: Utah Department of Employment Security

larly in states that never had prevailing wage laws and also in all of the states that retained them during this period.

Figure 3 is concerned with relative earnings between construction workers and all state workers. The Utah study correctly points out that, over the 15-year period from the late 1970s to the early 1990s, average construction earnings in Utah declined with respect to the average for all workers. But taken alone, this is misleading. In the figure, states are grouped into categories, with the taller, back lineup showing the average ratio of construction earnings to all earnings during the period 1976-1979, and the shorter, front lineup showing the same ratio during the period 1990-1993. The first pairing on the left is for the nine states that have never had a prevailing wage law. 14 The middle pairing is for states where prevailing wage laws were repealed between 1979 and 1987.15 The other three are for groupings where the prevailing wage laws have been estimated to be of increasing severity, as measured by how closely they reflect the union wage. 16

Clearly, no groupings of construction workers commanded wage premiums as large in the later period as they had enjoyed earlier, but whatever the reason for it, the change was not the result of repeal of state prevailing wage laws, since it also occurred in states that did not repeal them. The Utah study's claim of a unique decline in repeal states is unsupported, and its failure to report the commonality of experience between repeal states and others is extraordinary in a study carrying an academic imprimatur.

Multiple regression analysis. The Utah study uses an elaborate multiple regression analysis on a data sample of 27,778 observations to predict construction wage

302 J O U R N A L O F L A B O R R E S E A R C H

Figure 3

Ratio of Construction Worker Earnings to All Worker Earnings Pre-repeal (1976-1979) and Post-repeal (1990-1993) Periods

O

o~

1976-1! 1

1 I

" ~ 1,4one . . . . .

Change between averages of periods Strength of Prevailing Wage Laws (see text)

Source." Bureau of Labor Statistics. Employment and Earnings

1.4

1.3

1.2

1.1

rates in various states based on several factors the authors feel are determinative. 17 These are: region of the country; number of years after an arbitrary starting point of 1975 (the "secular trend"); the statewide unemployment rate for private, nonagricultural workers; the nationwide rate of inflation as measured by the consumer price index; and the status of the state's prevailing wage law - - whether the state has ever had one, had one but repealed it sometime between 1979 and 1988, had one during some or all of the entire period that covered public works contracts only in excess of $500,000, or had an active one. (This last factor is called the "legal variable.") By ignoring other factors, such as population growth rate, annual days of sunshine, degree of urbanization, or state right-to-work status, the Utah study's model implic- itly assumes that such factors have no effect on construction wage rates.

The model works by starting from a hypothetical "real" annual construction wage in 1975, then controls successively for the various components. For example, Utah's 1991 average annual construction wage is "predicted" by starting at a hypothetical point of $33,005, subtracting $79 because Utah is in the Mountain region, 18 subtracting $225 seventeen times to account for the secular trend for that many years after 1975, t9 subtracting $1,481 because there was an unemployment rate in Utah of 4.9 percent in 1991, 20 and finally subtracting $1,350 because sometime during the

A. J. THIEBLOT 303

17-year period, Utah repealed its prevailing wage law. 21 The predicted annual construction worker income level in Utah for 1991 was thus calculated to be $26,266.

Because it is a fine analysis using sophisticated statistical tools applied to a valid data series, some observers might feel that its results should be compelling. Unfortunately they are not. There are many ways to measure the sophistication of a regression model: One can analyze its components and raise questions, as was done in some of the endnotes above. One can evaluate whether significant information was neglected (also as done above). 22 But the acid test of the sophistication of a regression analysis is how well it predicts. For example, we have state-by-state unemployment rates as well as complete information on construction worker annual income per employee in 1991 dollars from the Bureau of Labor Statistics. 23 With these data it is easily possible to use the above regression equation to estimate construction worker annual wages for each state in 1991 and compare the result with the earnings actually received. I did this, and my results show that although the Utah study's multiple regression analysis might seem sophisticated, its results are not all that accurate. In seventeen states, its predictions of individual average construction workers' earnings were off by amounts greater than $5,000. The combined average variance for all states was $2,797 per employee.

This is not bad performance (an R 2 statistic of .73 is claimed), but the question arises as to whether a more accurate prediction could be made of construction wages by changing the model used on the same data set. For example, one might note that eight of the II states in the South region, four of the seven states of the Mountain region, and three of the six states of the Corn Belt either have no prevailing wage law or have a repealed law. Since these are also the three regions of the country having the lowest annual wage rates in all job categories, it is possible that what the Utah study's regression model attributed to the effect of repeal of (or never having had) a prevailing wage law might simply have been further differences of regional patterns in wage rates. A regression model that eliminated the "legal variable" (the status of prevailing wage law) and reanalyzed the coefficients assigned to regional differences might produce a better result than the Utah study's model.

To test this alternative, I substituted heuristically determined regional weighting factors for those assigned by the Utah study and totally removed the "legal variable" control weights. 24 When the results were compared, the revised model predicted 1991 annual construction wages with dramatically better accuracy. Only 8 instead of 17 states now missed their projection by more than $5,000, and the average by which all states missed their mark fell from $2,797 to an insignificant $3.64. Similar results were obtained using the original and the revised models for predicting the actual wage rates of 1990, 1992, and 1993. The revised model is two to three orders of mag- nitude better than the original in every case examined.

tt is significant that the improvements of the revised model come from eliminating consideration of the status of prevailing wage laws in the various states. This con- firms that annual construction wages in a state cannot be shown to have a measurable


connection with the status of prevailing wage repeal independent of other forces driving regional differences in wages. 25

In sum, the regression model used by the Utah study is an exercise in numerol- ogy that illuminates nothing and gives inaccurate results. That it may have been included solely to impress readers with the academic sophistication of the authors is supported by the fact that the Utah study, itself, puts it on an equal footing with a much more primitive statistical algorithm which will now be discussed.

2. Government Does Not Break Even. The truly shocking news from the Utah study came in its second major assertion: Because Utah repealed its prevailing wage law, the state lost millions of dollars of tax revenue, more than it was able to save in decreased construction costs - - $6.8 million more per year. This loss was extrapo- lated to the federal level where tax losses resulting from repeal of the Davis-Bacon act were estimated to be $1 billion to $2 billion annually, in "real" 1991 dollars.

In determining the tax loss to the State of Utah, the authors of the Utah study averaged construction worker incomes in states that had repealed their prevailing wage laws for a varying number of years before and after repeal, such that the sum of the years totalled 17. 26 The income levels are all converted to "real" 1991 dollars. Then the differences in the averages of individual income levels in years before and after repeal (1981 in Utah's case) are multiplied by the number of construction workers in 1991. Utah's income and sales tax rates are applied to this income level (after assuming all income earners are Utah taxpayers and have a "marginal propensity to consume taxable items of 80 percent" - - an extraordinarily high rate) to determine the total tax loss per year in 1991 dollars. This is then converted to 1995 dollars, which, being smaller, make the losses seem larger.

It is difficult to exaggerate how bad this analysis is, but first assume it is all cor- rect. Figure 4 is a close approximation of a chart appearing in the Utah study, showing the average of construction worker incomes in 1991 dollars for the nine repeal states before and after repeal. 27 After repeal, average construction worker annual incomes in the nine states that repealed their prevailing wage laws declined by $1,664, from $23,348 to $21,684, which was attributed to repeal: "This [decrease] does not control for other factors that might have been driving down wages, but it is prima facie evidence that the repeals forced lower earnings.. . . ,28

Sadly, the authors of the Utah study had to know that in the same "real" terms, that is, in dollars of equivalent purchasing power for the market basket of goods expected by the Bureau of Labor Statistics to be purchased by the average urban consumer, average annual construction worker earnings declined in almost every state, regardless of the status of its prevailing wage law. During the same time periods, states without prevailing wage laws and states that continued to have them also showed falling "real" construction income levels (Figure 5). The average percentage decline for the states that retained prevailing wage laws is the same as the average percentage decline of those that repealed them, and the percentage decline for states that never have had them is only a bit less - - 5 percent instead of 7 percent. The

Figure 4

Average Annual Incomes of Utah Construction Workers Pre-repeal (1976-1979) and Post-repeal (1990-1993) Periods

25

$23,348 $21,684

",z 15

e- ~ lO

20

A. J. THIEBLOT 305

Before Repeal After Repeal Avg. 1976-1979 Avg. 1990-1993

Se~un'e: Bureau of Labor Statistics, Employment and Earnings

"o

o

Figure 5

Period Comparisons, Construction Earnings In 1991 Dollars

28

26

24

22

20

18

• 1976-1979

- [ ] 1990-1993

No PW Repealed Have PW Law Law Law

Source: Bureau of Labor Statistics, Employment and Earnings


average dollar amount of the loss in states that retained their prevailing wage laws, $1,872, is about $200 higher than the average dollar amount of the loss in states that repealed them, and over $700 higher than the average loss in states that never had a prevailing wage law. Thus, one cannot infer that the decline in earnings in the nine states where repeals occurred is uniquely attributable to repeal.

If one were to assume that all states had the same income and sales tax rates as Utah and apply the same analysis to states that have retained their prevailing wage laws, then the 3,274,358 construction workers in prevailing wage states in 1991, who lost an average of $1,872 in real income, would have paid $717,163,000 less in state income and sales taxes. So by exactly the same argument and analysis that led the Utah study to conclude that repeal cost Utah $6.8 million in lost taxes, one could say that nonrepeal cost the states where repeal did not happen an average of $23.1 million in lost taxes. These numbers and those of the Utah study are equally nonsensical.

Furthermore, in neither case does a fall in the "real-dollar" income result in an actual tax shortfall, for taxes are not paid or lost in "real" dollars. For example, assume you are in Utah in 1979 and, as a reward for good performance, your employer increases your salary 10 percent, from $20,000 in 1979 to $22,000 for 1980. Also assume that at that time the combination of state income and sales taxes was 11.8 percent. How much additional tax benefit would Utah receive by virtue of your gain? The obvious answer is $236 ($2,000 x .118). The authors of the Utah study, however, would argue that your income in 1979 had been $39,000 in "real" 1991 dollars, whereas in 1980 it was only $36,300 in 1991 dollars. Therefore you would have lost $2,700 in "real" income despite your raise, which in turn would "cost" the state a total tax loss of $318.60 in 1991 dollars, or $382.32 in 1995 dollars. 29

In projecting its findings to the national scene, losses found for the repeal states are applied equally to all 6,000,000 construction workers in the United States, 3° despite prevailing wage law differences. Losses are also totted up for the 107,400 new employees said to have been added as a result of repeal, 31 as well as for the approximately 625,000 construction workers living in nine states free from prevailing wage laws who, having previously been said to sustain earnings losses twice as great as in repeal states, are projected to be impacted again by repeal.

On the earnings-loss side of the impact calculation, in addition to problems already discussed, the study fails to include differences in impact in different states depending on the severity of the state law, foresees no proportionate difference in impact from repeal of the federal Davis-Bacon law in states that may or may not have a state prevailing wage law covering some or all of the same employment at rates equal to or different from those set by the Davis-Bacon act, and assumes endless linearity. (The impact of repeal is constant from year to year, so Utah's 1981 repeal is held to have the same constant-dollar impact on average Utah construction earnings in 2082 as in 1982.) On the government-savings side, the study is non-judgmental with respect to savings from repeal, declining to accept one estimate over another within the range of 1 to 11 percent of outlays. 32 In its estimates of construction costs

A. J. THIEBLOT 307

(and therefore savings in construction costs), unlike the rest of the analysis, the study uses current rather than "real" dollars. 33

Does the tax loss exceed the savings from repeal? Table 1 is a partial re-creation of a table found in the Utah study projecting the effect of Davis-Bacon repeal on the federal budget. 34 It shows how, even using their own contrived model, the authors of the Utah study had to misstate substantially every fact to turn over $1 billion of net government savings from repeal of Davis-Bacon into a loss of almost $1.5 billion - - a $2.5 billion difference.

3. Increased Occupational Injuries. Having evaluated the major direct economic analyses of the Utah study, let us now turn our attention to the third major issue, the increased number of worker injuries after repeal. According to the Utah study, increased injuries occur because inexperienced construction firms cut safety corners, lower minimum wages cause high-wage construction workers to be replaced by new work force entrants, and seasoned hands take unnecessary safety risks to keep their lower-rate jobs. The combined effect is staggering: "[After repeal] there would be 76,000 additional workplace injuries in construction annually, with 30,000 of them serious and thus requiring time off from work to recover. This could lead to additional workers' compensation costs of about $3 billion per year, of which $300 million would be passed onto the federal government as increased costs on public works. ''35 (A footnote adds that 130 to 150 additional fatalities per year could also be expected as a result of repeal, but does not put a price on this carnage.) 36

The economic analysis supporting this claim in the Utah study is similar to that of other aspects of the study already reviewed and found questionable, and in this instance I must also challenge the source data. The theoretical construct derives from two premises: that the rate of injuries decreases substantially as length of service increases, and that large, experienced employers in construction have injury rates that are 80 percent lower than small-to-medium-size contractors. The first of these is grossly misleading, and the second is demonstrably wrong.

The plain implication of the length-of-service argument is that repeal of prevailing wage laws, by replacing old union contractors with new nonunion ones, disrupts established employment relationships and thereby increases accident exposure. The referenced footnote authority in the original does say this: "The frequency of occur- rence of accidents decreases substantially as length of service increases. ''37 But this gives a totally inaccurate impression if what follows in the source is left out. It goes on: "It is unlikely that the length of service [as reported in a data element on the workers' compensation form] has been interpreted as the total length of time in the construction industry. Rather, it is the length of time with the employer or on the job site where the accident occurs. ''38 Thus the source simply implies that most accidents occur to employees before they become familiar with their workmates or worksite, whereas the Utah study falsely transfers this to length of service in the industry. In fact, since union hiring practices still favor crewing up separately for each job whereas nonunion practices increasingly favor crew continuity from job to job,


Table 1

Utah-Study Model of Actual and Reported Effect of Davis-Bacon Repeal on the Federal Budget

Line Actual Per Utah Study Note

1 Employment 3,900,000 6,000,000 a

2a Lost income (per person) $ 1,477 $ 1,477 b

2b Lost income (total) $5,760 mil $8,862 mil (1 x 2a)

3 Gained employment 107,400 107,400 c

4 Avg. Income (in 1994 $) $28,378 $27,373 d

5a Added income, new employees $3,049 mil $2,940 mil (3 x 4)

5b Recovery of lost income

by new employees $159 rail $0 e

6 Net lost income $2,552 rail $5,922 mil (2b - 5a - 5b)

10 Lost tax, at 28% rate $714 mil $1,658 mil f

11 Value of federal construction $54. l bil $11.5 bil g

13a Sample hypothetical savings rate 3.2 percent 1.7 percent h

13b Savings at this rate $1,730 rail $196 mil (11 x 13b)

20 Net (loss) to government budget $1,016 mil ($1,462 mil) i

N o t e s : a.

b.

c.

d.

e.

f.

g.

h.

i.

See endnote 30. Line numbers here correspond to those in the Utah study.

As discussed in the text, there actually was no lost income except when measured in constant dollars. This is the repeal-based "loss" for 1991 expressed in 1994 dollars.

1 cannot support this number logically or statistically, but use it as given.

The "actual" figure is the BLS-reported figure for 1993, expressed in 1994 dollars; the Utah-study figure seems to be the 1991 BLS-reported figure, expressed in 1994 dollars.

Equals $1,477 x 107,400. As these new employees owe their jobs to repeal, they cannot very well be said also to suffer diminished income as a result of repeal.

To reiterate, there are no actual earnings decreases, therefore, there are no decreases in tax receipts or actual tax losses. These numbers have only theoretical meaning.

See the discussion at endnote 33.

Per Congressional Budget Office. See discussion at endnote 32.

(Line 13b - line 10.) The Utah-study figure further overstates the "loss" by not considering that, by its figures, the federal government saves less (in reduced construction costs) than it stops paying to the 10 percent of the constmcrl.on work force etlgaged on public works construction. The difference, $396 million in this example, represents money continued to be paid out by government for construction but not received by construction workers, so it must necessarily go to someone else. That someone eIse wilt have to pay tax. On the same assumptions as above, this tax would subtract $111 million from the government loss. It should also be noted that if the induced construction employment (said to be 107,400 here) is brought about by reducing the number of workers receiving unemployment compensation payments, and if an unemployed person receives plus-or- minus $1,000 per month in transfer payments, there is a net savings to the government of $1,655 million from the decreased unemployment. Thus, even using the erroneous Utah numbers in the table above, the net loss of $1,462 million would become a net gain to government of $304 million from repeal of Davis-Bacon.

A. J. THIEBLOT 309

replacing union workmen by nonunion ones should, if anything, result in lower injury rates, and this impact, though probably small, is indeed discernable in the statistics below.

Returning to the study's arguments, large contractors are said to have greatly lower injury rates among their employees, but this contention is not supported. Figure 6 demonstrates that injury rates actually peak in establishments of medium size, and are lower for firms at both ends of the size spectrum. 39 Certainly, no economist seeing these figures would conclude that large employers have greatly reduced injury rates than smaller ones. Thus, both initial premises of the Utah study are seriously flawed.

Does Repeal Increase Injuries? Some aspects of the Utah study defy analysis. The section comparing injury rates for construction workers in states by status of their prevailing wage laws is one of them. For unexplained reasons, the authors of the Utah study based their analysis of construction worker injuries on the experiences of plumbers and pipefitters, although any source material containing data for this group would also have it for all construction employees. Its methodology is to compare the averages of injury rates for plumbers and pipefitters in groups of states in variable time frames as follows: the 14-year average injury rate in 32 states that have a prevailing wage law is compared with that in 9 states that have never had a prevailing wage law, and also with the average injury rate in 9 states that repealed their prevailing

25

20 K o e~

15

1o

~,- 5

Figure 6

Injury. Incidence Rate By Employment Size Representative Year (1978)

1-19 20-49 50-99 100- 250- 500- over 249 499 2,499 2,499

EmploymentSize

Source: Occupational Safety and Health Administration


wage laws between 1979 and 1988 for 1 to 10 years before repeal and with the injury rates in the same states averaged for the 3 to 12 years after repeal. It then takes the percentage difference found between "before repeal" and "after repeal" and says that this is the percentage by which injury rates would increase in the United States attributable to repeal of Davis-Bacon. This percentage is finally applied to the estimated cost (in an unspecified year) for workers' compensation in the construction field to arrive at the $3 billion conclusion.

This may be a complex analysis, but it is also faulty. First, it needlessly bases its conclusions on a subset of the construction work force. 4° Second, it mentions but does not control for differences in injury rates depending on the type of work done. 41 Third, it draws inferences from direct comparisons of data sets taken from variable time frames. Fourth, it generalizes its statistical result inadequately. Fifth, it improp- erly confutes injury rate results with workers' compensation spending estimates to determine impact. 42 These are not the only problems.

Data said to be used in the Utah study's analysis are not actually available in the source materials cited there. 43 In fact, according to a spokesman for the Occupational Safety and Health Administration, the only published data on construction industry injury rates by state for this time period are those in Figure 7 showing the incidence of injuries per 100 workers in the construction industry for the years 1975 to 1978 for three groups of states: those that never had a prevailing wage law, those that would subsequently repeal their prevailing wage law during the following decade, and those

Z

18.0 t 17.0

16.0

15.0

14.0

13.0

12.0

Figure 7 Injuries Per 100 Workers, Construction Indust~ By Status of Prevailing Wage Law, 1975-1978

1975 1976 1977 1978 Year

Source: OSHA Oversight Hearings, 1980

[ ] Never Had

• Pre-Repeal

• Had

A. J, THIEBLOT 311

that had prevailing wage laws. 44 These figures yield exactly opposite conclusions from those reached by the Utah study for the pre-repeal situation.

The Utah study states, "Injury rates in construction were relatively low in the nine repeal states prior to repeal . . . . In the 32 states that have retained prevailing wage laws, injury rates have been and remain relatively low. In nine states that have never had state prevailing wage laws, injury rates were and remain relatively high. ''45 Figure 7 shows that, in actuality, average injury rates for the pre-repeal states were the highest of all, and that, in the pre-repeal time period, they were relatively low for states that never had a prevailing wage law and relatively high for those that did.

Figure 8 plots the average incidence of injury in representative time periods before and after repeal drawn from unpublished OSHA data. 46 Obviously, injury rates did not increase in repeal states after repeal. States having prevailing wage laws (which tend to be states with more union employment) continue to have higher injury rates than states that never had a prevailing wage law, and the states that repealed their prevailing wage laws still have the highest injury rates.

Since there is no increase in injury rates in repeal states, there is no cost associated with repeal. 47 Neither are there additional deaths. Based on the statistics above and on union and nonunion death rates in construction, 48 one could assign injury- related cost differentials to prevailing wage states, thereby estimating a cost to the country of maintaining these laws, but this would be as meaningless as the Utah

18

16

14

12 10 8

6

.=~ 4

Figure 8

Change In Average Construction Injury Incidence Pre-repeal and Post-repeal Periods By Status of Prevailing Wage Law

17.1 16,6

14.2 • Pre-Repeal

Avg. 1975-1978

[ ] Post-Repeal Avg. 1990-1992

Never Had Repeal States Had

Prevailing Wage Law Status

Source: Unpublished data, U.S. Department of Labor, Occupational Safety and Health Administration


study's conclusions (although better supported by the known facts). The conventional wisdom, that injury and death rates in construction are independent of union membership and of prevailing wage status, is reaffirmed. 49 In fact, all the conventional wisdom about repeal of prevailing wage laws of the states or repeal of the Davis- Bacon act is reaffirmed.

III. New Estimates of Savings Likely from Repeal of Davis-Bacon As I stated in the introduction, my primary purpose is to examine the anti-intuitive conclusions of the Utah study. The study claimed that repeal of the prevailing wage laws drives construction wages down below market, costs governments more in lost taxes than could be expected to be saved in reduced construction costs, and increases workplace injuries, deaths, and their related expenses. I find instead that repeal low- ers artificially inflated wage rates but only towards the market level, not below it; that the lower construction worker earnings and government tax losses portrayed in the study exist only when measured in theoretical constant dollars but do not exist or are really increases when measured in actual dollars; that savings from prevailing wage law repeal are both real and substantial; and that construction injuries are actually the inverse from what the Utah study claimed, higher in states that retained their prevailing wage laws than in those that did not.

Most of my findings have thus been negative, debunking the Utah study's conclusions about economic impact of repeal. This might leave an erroneous impression that I lack estimates of my own. In fact, I have advanced conclusions about the positive economic impact of repeal repeatedly and at length in the past, and have found nothing in the Utah study or in any other prevailing wage developments to contradict them in any essential way. When I developed them in the mid-1980s, I concluded that although the amount of savings from Davis-Bacon repeal is unknowable because of the different ways in which prevailing wages are calculated, the majority of reli- able estimates clustered around $1 billion a year--savings to the federal government of from 1 to 3 percent on some projects, up to 4 to 7 percent on others. 5°

Various approaches were followed to reach these estimates, which will not he repeated here, but a common problem of those based on labor cost differentials was the difficulty of establishing the level of wage rates actually supported by the prevailing rate process so one could tell how much they might drop on repeal. Briefly stated, whereas gauging wage differentials between union rates and market rates is possible, 5~ the Davis-Bacon Act (unlike certain state prevailing wage laws) sets union rates only part of the time. Sometimes instead, it sets minimum wage rates or survey-average rates. The potential savings from repeal are thus clouded by uncer- tainties about how closely Davis-Bacon rates approached union rates to start with. In evaluating the Utah study, I found a new statistical avenue around these problems.

The analysis begins with the hypothesis that repeal of a state's prevailing wage law moves average earnings of construction workers in the direction of earnings of all the state's other workers. 52 Wide variations exist in the average earnings of work-

A. J. T H I E B L O T 313

ers in different states. Some of these differences have to do with climate, some with historical patterns, some with regional growth, some with levels of unionization. However they come about, assume that they would affect workers in the construction industry to about the same degree that they affect workers in other industries. Then if a pattern exists relating higher relative construction wages with stronger prevailing wage laws, the savings from eliminating them and allowing local market conditions to set wage rates in construction, just as it does in other industries, could be estimated.

Table 2 shows this first step. It is a restatement of the data already presented in Figure 3. The ratio of construction worker earnings to all worker earnings increases uniformly with increasing strength of the state's prevailing wage law in the pre- repeal period from a low of 1.18 in states that never had a prevailing wage law to successively higher ratios for states whose prevailing wage law is characterized as weak, average, or strong (likely to produce near-union rates). 53 In the post-repeal period, the ratio found in the repeal states closely approximates that in the states that never had a prevailing wage law, in keeping with my hypothesis.

To take the analysis to the national level, assume that the impact on a state's construction earning levels from repeal of the Davis-Bacon act would be the same as the impact on them from repeal of the state's prevailing wage law. 54 Then the impact of repeal on government spending will be in proportion to the state's construction work done for different levels of government. So, if federal and joint federal-state projects are 20 percent of a state's total construction work, then 20 percent of the savings from repeal would accrue as reduction in federal costs.

Figure 9 is determined from Table 2 as follows. First, for each state within the category of weak prevailing wage laws the additional ratio reduction (1.10 - 1.08 = .02) is multiplied by the average number of construction workers in those states for the same time period (1991-1993, not shown) and by the average annual earnings of

Table 2

Ratio of Construction Worker Earnings to All Worker Earnings

Prevailing Wage Pre-repeal Period Post-repeal Period Law Status (1976-79) (1991-93)

Never had 1.18 1.08

Repeal state 1.24 1.07

Weak 1.22 1.10

Average 1.29 1.13

Near union 1.36 1.20

Source: BLS, Employment and Earnings, various years.


..q

7,000

6,000 5,000 4,000 3,000 2,000 1,000

0

Figure 9

Sector and Total Savings From Repeal Of Prevailing Wage Laws

~[~] ~;~;a~ ~i°n ~ ($615)8

Savings by Sector Source: See text.

the state's construction workers. Savings for individual states are summed for the sector total. The process is repeated for the other two sectors, and the grand total is as presented. Federal and federally-aided construction subject to Davis-Bacon amount to 21 percent of the national construction market, 55 so the federal government might expect to save $1.3 billion of the 1993 budget, or $1.58 billion of the larger, 1995 federal budget. If administrative savings were also included, federal savings would top $1.8 billion a year, substantially higher than previously estimated but still in the 3 percent range of total project cost. However, if the state and local governments follow the lead when the federal Davis-Bacon act is repealed, the total savings at all levels of government may exceed $4 billion per year, counting administrative and enforcement spending, since public works account for about 56 percent of all construction spending.

IV. Conclusion

The Utah study set out to overturn the conventional wisdom about the positive economic impact that would accrue from repeal of the Davis-Bacon act and state prevailing wage laws. It is an impressive-looking piece of work, but fundamentally flawed in many ways. All of its conclusions that I evaluated are wrong, and the conventional wisdom is not only supported, it is reinforced by the new statistical approach developed here. More positively than ever before, I feel that the Davis- Bacon act, whose cost to the federal government alone may exceed $1.8 billion per year in excess government spending, should be repealed.

A. J. THIEBLOT 315

N O T E S

*The author gratefully acknowledges the assistance of David Denholm, President, Public Service Research Council, and Derrick Max, Staff Economist, U.S. House of Representatives, in finding sources of data and helping structure this paper, and of Dr. Herbert R. Northrup, Professor Emeritus, University of Pennsylvania, for his guidance and advice.

IThere is no room here for a full explanation of the Davis-Bacon act and other prevailing wage laws, for which see, inter alia, A. Thieblot, Prevailing Wage Legislation: The Davis-Bacon Act, State "Little Davis- Bacon" Acts, The Walsh-Heuly Act, and the Service Contract Act, Labor Relations and Public Policy Series No. 27 (Philadelphia: Wharton Industrial Research Unit, University of Pennsylvania, 1985), pp. 1-43 and A+ Thieblot, State Prevailing Wage Laws, An Assessment at the Start o f 1995 (Rosslyn, Va.: State Relations Department, Associated Builders and Contractors, 1995), pp. 1-39. In application, all prevailing wage laws set minimums based on the modal rate (the rate paid to the greatest number), usually provided it is the majority or some other set percentage of the similar craft and class, or it is based on the average, or it is set at the union rate. Even when not specifically mandated, the union rate is frequently found to be prevailing because that is the only rate other than the minimum wage likely to be paid to any significant number of different persons in the same job classification.

2The breakdown of state prevailing wage laws at the beginning of 1995 was that 9 states had never had one, 9 states had repealed their laws between 1979 and 1988, and one state, Michigan, had a law inacti- vated by constitutional problems. Thus, 31 states plus the District of Columbia have active laws. About half of these specifically or effectively use union rates as prevailing, and the rest take Davis-Bacon or some central-tendency rate as prevailing. Additional prevailing wage laws exist in U.S. Territories and at the local level in a number of states, but I do not consider those here.

3p. Philips, G. Mangum, N. Waitzman+ and A. Yeagle, Losing Ground: Lessons from the Repeal o f Nine "Little Davis-Bacon" Acts (Salt Lake City: University of Utah, February 1995). 1 shall generally call this the Utah study.

4Within weeks of its first appearance, the study's findings were quoted in deliberations of the U+S. Senate and House of Representatives and of state legislative bodies in Pennsylvania, Michigan, Indiana, Califor- nia, and Ohio, among others.

5This number is actually more than a little elusive in the Utah study. It is presented in the executive summary, as a "'real" earnings loss of $1,477 as denominated in 1994 dollars (i.e., conformed to the purchasing power of 1994 dollars by inflating earlier dollars by the amount of change in the Consumer Price Index). An alternate number, also said to be denominated in "real" 1994 dollars, is found on page 16, where the cost to the same construction workers in the same states is said to be $2,016, or 36 percent more. This deconstructs to $1,835 of "real" earnings loss as denominated in 1991 dollars. No explanation is provided for the difference. On page 23, in the regression analysis, the loss is said to be $1,350 in "real" 1991 dollars. Finally, in another summary on page 68, it is alternatively $2,169 in 1991 dollars (fall from $24,317 before repeal to $22,148 after)--roughly $2,386 dollars of [994 size - - or $1,477 in 1994 dollars, depending on the analysis used to determine it.

6The study says (p. 17) that "bringing [the revenue losses] to 1995 values using the consumer price index yields an estimated loss of $8.2 million in state taxes in Utah in 1991 evaluated in 1995 dollars." Two com- ments: first, this was published in February 1995, and it is extraordinary that the Utah study authors were abte to anticipate the value of the Consumer Price Index to establish the worth of the 1995 dollar before the year even began. Second, "'real" 1995 dollars are inappropriate to measure tax collections in earlier periods. See for example, Neter and Wasserman, Fundamental Statistics for Business and Economics, 2nd. ed. (Boston: Allyn and Bacon, Inc., 1961), "Some Problems in using index numbers to obtain constant- dollar data," pp. 629 et. seq.

7The study goes on to claim that besides the lower rates, the repeal also exposed government purchasers of construction services to cost overruns, and included several charts to the effect that cost overruns on high- way and heavy jobs in Utah increased after repeal (although, of course, from a lower base). Since the time

316 J O U R N A L OF L A B O R R E S E A R C H

frame of this examination spans more than two decades, and since allowing cost overruns and "costly change orders" is a matter entirely under the control of the contracting authority and is unrelated to prevailing wages, this part of the Utah study was not further analyzed. Also neglected here are claims in the Utah study of intensely negative impacts of repeal on apprentice training and some interference with minority development in the industry. These matters, though important, are secondary, and proper analysis of them would unduly lengthen my analysis.

8In the typical depiction of a demand curve for labor, it is downward sloping to the right, indicating that if the price of labor decreases the quantity demanded will rise. The slope of this curve is what one of the Utah study's regression analyses set out to discover when estimating the increased employment that might come about as a result of reduced wage rates. What we are discussing here, however, is exogenous demand, which results is the demand curve shifting outward to the right. If an upward sloping supply curve can shift in proportion, the market-clearing price remains constant; if not, the price rises. See, for example, G. Bloom and H. Northrup, Economics of Labor Relations, 9th ed. (Homewood, II1.: Richard D. Irwin, 1981), p. 333.

91t is commonly assumed that when a union-rate prevailing wage law is repealed and rates on government work are no longer artificially sustained, all workers will thereafter receive the market rate, but that is not true. A union contractor will still have to pay the rates required by his union contract. Thus, union employees who continue to find work continue to be paid their union contract rate. However, it may be more difficult for union employees to find work as the (state) government sector becomes like the private one and union employers leave the market, and over time the union rate may trend towards the open market level.

E~l'he Utah study's authors rely on anecdotal information to assert that displaced union employees will take jobs away from nonunion employees, but fail to consider that the displaced union employees' jobs are now being filled by those same nonunion workers. Thus repeal of prevailing wages does not produce a cascade of job displacements, but an exchange of jobs between union and nonunion employees, or a three- way exchange of union employees becoming unemployed, nonunion workers taking over the jobs of the union workers, and the unemployed filling in where the nonunion workers left.

I JA market condition does, in fact, exist in which wages can be bid down. It is known as monopsony in economic theory, and is the rarely found situation of the single buyer in a competitive marketplace. Some have argued that monopsony characterized construction labor markets during the Depression. Between 1926 and 1933, for example, the volume of new construction in the United States declined from over $12 billion to under $3 billion, and employment in the industry fell from over 800,000 to under 400,000. Earn- ings plummeted, from $1,700 a year down to $820. Simultaneously, the proportion of public construction shot up from the traditional 20 percent to over 55 percent. Contractors on public works in that time period could offer below-market wages which workers would have to accept because there were no alternatives. It could be argued that because government construction was about the only game in town, government contractors were agents of a monopsony. Today, public construction is again only about 20 percent of the industry's activity, so there are about four times as many jobs in the private sector at any given time as in the public sector. Furthermore, there are active safety nets in place for the unemployed. No monopsony power lodges in the federal government's 20 percent market share, and therefore there is no need for the likes of a prevailing wage law to protect wage earners from its monopsonistic excesses.

~2These figures were provided by the State of Utah, Department of Community and Economic Develop- ment, citing in turn the Utah Department of Employment Security, Labor Market Information and Research. They cover average monthly employment, average monthly wages, and average number of establishments in the first quarter for all employees on nonagricultural payrolls and for various combina- tions of 2-digit SIC codes in the state, for 1953 to 1993. (Data in the author's possession.)

13The claim that construction wage rates fell is predicated on their being measured in "real" dollars of 1991 or 1994 value, inflated to earlier years by the Consumer Price Index. Not only construction but almost all other average wage rates - - in Utah, in other prevailing wage repeal states, in states that never had a prevailing wage law, and in states that have functioning prevailing wage laws - - also declined in "real" terms during (and for a few years after) the period of double-digit inflation of the Carter years.


14Georgia, Iowa, Mississippi, North Carolina, North Dakota, South Carolina, South Dakota, Vermont, and Virginia have never had prevailing wage laws.

15In the order in which their prevailing laws were repealed, the repeal states are Florida (1979), Alabama (1981), Utah (1981), Arizona (1984), Colorado (1985), Idaho (1985), New Hampshire (1985), Kansas (1987), and Louisiana (1988). Michigan's law was also found to be unconstitutional and was rendered inactive in 1994, but it was active during all of the statistical comparisons made here or in the Utah study.

16Explanations for the listings of increasing severity are found in Thieblot (1995), pp. 12-18. The groupings are as follows: weaker (nearer to market rate) laws, Nebraska, Tennessee, Oklahoma, Kentucky, Maine, Maryland, Montana, and Texas; average laws, Delaware, Connecticut, District of Columbia, Wyoming, New Mexico, Arkansas, Indiana, Pennsylvania, Alaska, Nevada, Oregon, West Virginia, and Wisconsin; more severe (near union rate) laws, Michigan, Illinois, Missouri, Rhode Island, Minnesota, Ohio, Washington, Hawaii, California, New Jersey, New York, and Massachusetts.

17The number of data points, 27,778, claimed by the Utah study is puzzling, as is the collection of data on construction earnings by four-digit SIC code. Since there is no indication that inappropriate SIC codes (such as Operative Builders who build single-family housing for their own account) have been eliminated, there seems to be no reason not to use industry-wide annual averages, which would require fewer than 900 data points. The number is also puzzling because it requires that there be 32.04 SIC code classifications to reach the total number of observations (51 states × 17 years x 32.04 SIC codes = 27,778) where only 26 exist. (Office of Management and Budget, Standard Industrial Classification Manual, 1972.)

18The range of control amounts by region is quite large, from positive $15,628 in Alaska to a negative $2,360 in the South area. It ignores such items as urbanization of different states within regions.

19The secular trend amount is apparently not itself affected by regional differences or regional differences in inflation. Being in fixed dollar amounts, it has a much higher percentage effect on low-wage states than on high-wage ones, although no valid case could be made for why it should act this way. For 1991, the secular control variable would be .59 percent of lhe Hawaiian construction worker wage, but 1.17 percent of the New Mexican one.

2{~I'he proposed relationship between statewide unemployment rates and construction earnings is unexplained in the text.

21Note that in 1991 dollars the negative effect ascribed to repeal of prevailing wage law in the regression analysis (p. 23) is the $1,350 reported here. The difference is not overwhelming, but on page 20, the negative effect of repeal, in 1991 dollars, was said to be $1,835. See also note 6, above.

22Many other important complications are also ignored by the Utah study. For example, construction workers are not paid annual incomes, but hourly wage rates, and the two are not conformable without taking work hour changes into account. This factor is not mentioned in the study, although there is growing evidence that nonunion employees work fuller years than union ones. See H. Northrup, Open Shop Con- struction Revisited (Philadelphia: Industrial Research Unit, The Wharton School, University of Pennsylva- nia, 1984), p. 520. Another matter is the wage dynamic associated with the changing number of persons employed. Since most employees enter or leave an industry at the bottom of the wage scale, expanding work forces tend to have lower average wages, and shrinking ones higher average wages. This factor, though mentioned in the text, is not included in the regression equations.

23Unemployment rates are found in U.S. Department of Labor, Bureau of Labor Statistics, Geographic Profile of Employment and Unemployment, 1991. (Also available for other years.) Earnings information is from U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, 1991. This series is available, sometimes called Employment and Wages, for a number of years, some exclusively on microfisch. As of this writing, a few years from the mid-1980s do not seem to be available in any distributed format. Their lack is not critical to the analysis.

24I could not simply rerun the analysis on the Utah study's data points to determine the regional weighting coefficients, because its authors declined to make the data set reasonably available.


25It is possible to have a regression model that uses only unemployment rate, secular trend, legal status, and regional location as variables, and with such a model, the least squares regression line fit to the data would no doubt produce the coefficients for legal status found in the Utah study. But these coefficients are simply the ones that give the best fit to the data tor that particular model, and, as already indicated, the model used by the Utah study is of questionable validity. The Utah study also has a second regression model, using what may be a different set of another 27,778 data points (it requires different data than the first, but is said to be the same size). It is intended to show the relationship between level of construction employment per Standard Industrial Classification (SIC) code and changes in average construction wages. For unexplained reasons, this analysis uses four-digit SIC codes, assigning an average employment level of 3,540 workers to each code, per state. This breakdown is strange, because the SIC code system classi- fies employers, not employees. For example, SIC code 1781 is for contractors who specialize in drilling water wells, whereas SIC code 1522 is for "'general contractors primarily engaged in construction of residential buildings other than single-family housing_" (Executive Office of the President, Office of Manage- ment and Budget, Standard Industrial Classification Manual, 1972.) The groups of contractors represented by these codes are similar neither in the number of persons employed by them, nor in their size from state to state or year to year. There is no reason to suppose that the size of these disparate groups might be affected in the same percentage or absolute way by existence or repeal of prevailing rate laws. Thus, to divide the industry's employees arbitrarily among these 26 groups of employers, "control" the groups' size to a national average, make assumptions about the impact of lower wage rates or the way the numbers might be increased or decreased by prevailing wage law repeal, statewide unemployment rates, and the rest, then expand the result back to the universe of construction workers is senseless. One could equally well divide construction workers by alphabetical listing or shoe size. The components of this model are even less compelling than those used previously for the economic model, and will not be covered further.

26There is no valid reason for performing such an average over a variable number of years, just as there is no valid reason for deducing Utah construction workers" incomes from the average wage rates of construction workers in nine states when those figures for Utah construction workers are available directly.

27My numbers use a somewhat different data set from the same source, the Bureau of Labor Statistics Employment and Earnings series.

28The Utah study, using data from 1975-1991, found the nine repeal states' average incomes to decline from $24,317 to $22,482, a difference of $1,835. (Figure 2.5, p. 19.) I do not consider the variation from the numbers in the text significant.

29The inflator used to translate 1979 and 1980 dollars into "real" 199l dollars is the Consumer Price Index (CPI). On the basis of 1991 = 100, the CPI stood at 195 in 1979, and 165 in 1980. Following the study's example (at p. 20), 1 increased the purported loss 20 percent to restate it in 1995 dollars. (Actual CPI changes were 4 percent for 1991-1992 and 3 percent for both 1992-1993 and 1993-1994, so the Utah study must anticipate 10 percent additional inflation for 1994-1995.) The study further expands the losses by imposing them on the 31,528 persons employed in construction in Utah in 1991, rather than to the smaller numbers employed in the periods either before or after repeal - - 27,224 and 29,723 respectively. The entire analysis for the State of Utah is repeated in slightly different form on p. 29 of the study, using the regression coefficient for "repeal states" of $1,477, upped from $1,350 to express it in 1994 dollars as a measure of the loss. This amount is applied as above, but to the actual number of construction employees in Utah in each year from 1987 to 1993, less a small offset. Total tax losses are balanced against a range of hypothetical savings from repeal, which depend on the value of state-financed construction. The dollar amounts of state financed construction are not adjusted to constant 1994 dollars, but are in current, and therefore smaller, dollars.

3°According to Employment and Earnings, in 1993 the average annual employment in construction, counting 636,518 proprietors and an indeterminate number of management personnel who would not be subject to prevailing rates, was 4,589,541. Thus no more than 3,953,023 persons could possibly be affected by prevailing rate repeal under the broadest assumptions of the Utah study. This number was readily available to the study's authors, who chose instead to use a hypothetical and unsupported number of 6,000,000.


3lThese new employees go from unemployment or work in other industries to construction, where they are paid an average of around $24,000, much of which is new money on which taxes would be paid. This should certainly represent a net gain in tax receipts. Instead, the Utah study credits them with losing $1,477 each (and government is credited with losing several hundred dollars in taxes). Even with a model as crude as this one, the new employees should be stripped from the cost side.

32The Utah study does state (p. 25) that although savings may be higher or lower, "The Congressional Budget Office [CBO] favors an estimate of a 1.5 percent cost savings associated with the wage effect plus a 0.2 percent cost savings because of paperwork associated with Davis-Bacon." Where I need to illustrate a point with a concrete example, I use this level, but point out in passing that it is inappropriate for the Utah repeal. Unlike the Utah's study's retroactive analysis of repeal impact, the CBO estimate is prospec- tive (after 1995) because it supposes implementation of a 1983 court determination requiring rates to be set for construction helpers (a worker category found mostly inopen-shop construction). CBO anticipates this to occur in 1995, decreasing the excess cost of Davis-Bacon by 1.6 percentage points, and conse- quently lowering the savings from repeal if repeal were to take place later. (Letter of June E. O'Neill, Director, Congressional Budget Office, to Honorable Cass Ballenger, Chairman, Subcommittee on Work- force Protection Committee on Economic and Educational Opportunities, April 21, 1995, p. 21.) As applied to historical figures such as those used in the Utah study, the proper CBO percentage estimate would be between 3.3 percent and 3.8 percent for a law that sets rates similarly to Davis-Bacon. Prior to repeal, however, Utah set rates effectively at the union rate, so the impact of repeal, using the CBO's methodology, would be considerably higher, probably on the order of 6 percent.

33The $11.58 billion value for federal construction used by the Utah study (p. 30) is the figure for the amount of federally owned construction put in place in about 1985. (See U.S. Department of Commerce, International Trade Administration, Construction Review, Spring, 1994, Table A-3.) By fiscal 1993, that figure had grown to $17.2 billion, but still massively understated the amount of construction that might be affected by repeal, because Davis-Bacon applies to state grants-in-aid as well as to direct federal spending. The total figure for 1993 is actually $47.7 billion, budgeted to rise to $55.8 billion by 1995. The Utah study's figures thus understate the value of relevant construction (and therefore the savings that would result from repeal) by about a factor of five.

34The original of this figure is found on page 29 of the Utah study.

35See the Utah study executive summary. Curiously, in testimony prepared for delivery to the Ohio Legis- lature in June 1995, Professor Philips, the lead author of the Utah study, said: "We found that injury rates rose by 15 percent after the nine states repealed their prevailing wage laws. We did not calculate the increased worker compensation costs these injuries created nor the cost to the state for caring for unin- sured construction workers." P. Philips, Wages and Benefits as a Percent of the Net Total Costs in the Con- struction tndust~, (Salt Lake City, Utah: Economics Department, University of Utah, undated), p. 6.

36Utah study, endnote 82~

37U.S. Department of Labor, Occupational Safety and Health Administration, Construction Accidents: The Workers' Compensation Data Base, 1985-1988, April 1992, p. 13, cited in Utah study at endnote 78.

38Same source page. The public relations flak who turns the theater reviewer's pan, "It was wonderful if you have trouble sleeping," into praise by quoting only the first three words is doing similar work.

39U.S. Department of Labor, Bureau of Labor Statistics, Occupational Injuries and Illnesses in the United States by Industry., 1978, Bulletin 2078, August 1980, Table 6. Although the numbers shown in our Figure 6 are for 1978, there should be no material change from year to year.

40The Utah study (p. 62) says that plumbers and pipefltters (SIC 171) were chosen because this specialty trade has injury rates in the mid-range of rates for construction. This is not supported by the sources cited (U.S. Department of Labor, Bureau of Labor Statistics Occupational Injuries and Illness Survey reports, various years), where this category is typically the second highest of all 3-digit codes within the construction industry. Furthermore, since all construction workers are presumably affected by prevailing wage


laws, it is more reasonable to evaluate the injury and illness rates of all construction workers, which numbers are presented in the same reports, than to deliberately measure a nontypical subset's patterns and apply them to all.

41If one were to assume there actually was an impact on injury rates as a result of inexperienced or untrained workers taking over prevailing rate work after repeal, there would be no reason to suppose a proportionate impact on segments such as roadbuilding, where plumbers and pipefitters are represented hardly at all, as on commercial construction, where they are numerous. This is a different statistical problem from that of extending the injury rate results from specialty contractors (plumbers and pipefitters) to other construction segments or to other industrial segments, like operative builders or residential contractors, whose employees or employees' activities would be very little influenced by prevailing rate repeal. Both analyses are neglected by the Utah authors.

42The Utah study authors talk about injury rates, serious injury rates, and days lost per year but show no apparent appreciation of the difference between these series and workers compensation statistics. Accident rates reported for workers' compensation purposes (by the only 10 states that provided this data to the Bureau of Labor Statistics each year for the four consecutive years of the study) are quite different from accident rates reported to OSHA, partly because states delay from one to eight days before classifying an injury or illness as serious and reporting it. (U.S. Department of Labor, Occupational Safety and Health Administration, Construction Accidents: The Workers' Compensation Data Base 1985-1988, April, 1992.)

43The Utah study's source, as cited in its text, p, 62, is the BLS Occupational Injuries and Illness Survey report for various years. But these reports do not give state-by-state data breakdowns and have never done so. A special Occupational Injuries and Illness by State report was issued in 1980, giving data for 1975- 1976, but there has been no published report since. Furthermore, because of varying state participation in the survey, those state-by-state data that were available did not contain reports for several key states, including New York, New Jersey, Illinois, Ohio, and Texas, among others, Spokesmen at the OSHA Office of Statistical Studies and Analysis, interviewed July 29, 1995, stated that full state-by-state information is not available and has never been available in any form for either plumbers and pipefitters or for construction workers generally. The greatest concentration of published state-by-state data on construction injuries is found in "Oversight Hearings on OSHA - - Occupational Safety and Health for Federal Employees, Part 4: State Plans," 96th Cong., 2d Sess., March 4, 11, 19; April 1, 29; May 28; June 17, 25; July 22; and September 16, 1980. p. 688. This gives incidence rates for construction injuries and illness per 100 full- time workers in 45 reporting states in the five years, 1974-1978.

44From the OSHA hearings, 1980. Not all states are included. Georgia, one of the never-had states, declined to participate in the survey, as did Illinois, Ohio, New Jersey, New York, and Texas, all of which did have laws. Additionally, data are missing for Nevada (1975), Michigan (1976), Arkansas, North Dakota, and New Hampshire (1977 and 1978) and Oklahoma, Colorado, North Dakota, Tennessee, and Mississippi (1978). It does not appear that data missing from individual years should affect the results.

45Utah study, p. 63. For reasons already stated, it is highly unlikely that the Utah study could possibly have reported data for 32 states that retained prevailing wage laws, since data were available from the stated source for a maximum of 27 states. Also note that the chart (Figure 4.1, p. 63) is titled "Injury Rates in Construction," whereas the text speaks of injury rates to plumbers and pipefitters, SIC 171. I can neither confirm nor deny the injury rates presented if they are for plumbers and pipefitters, since I know of no possible source for that information. It seems unlikely, however, that the pattern for the injury rate for this subset would be the inverse of the pattern for construction workers generally.

46The pre-repeal data, for 1975 through 1978, are from the hearings cited in n. 33, supra. Data for 1990 through 1992 were made available to the author (in Washington, D.C., July 29, 1995) by Joseph DuBois, Director of Data Analysis, U.S. Department of Labor, Occupational Safety and Health Administration. Mr. DuBois, who had also prepared the data used in the 1980 OSHA hearings, verified that both data sets were similarly derived from individual state submissions, using the same definitions and statistical methodolo- gies, He also confirmed that data are not available in any format from the federal government covering construction worker injury rates in Georgia, Illinois, New Jersey, New York, and Ohio for either time

A. J. THIEBLOT 321

period, or from Texas in the earlier period and South Dakota, Colorado, Idaho, New Hampshire, the Dis- trict of Columbia, Pennsylvania, and Wisconsin in the later one. For comparison purposes here, if no data were available for either time period, no estimates were made. If data were available for one or the other period, I assumed no change in average rate between periods.

471 should comment briefly on the Utah study's accompanying multiple regression analysis. It purports to reach the same conclusion about repeal causing accidents to increase but is even more heavily flawed than the earlier multiple regressions. Here, the model is one that predicts not injury rates but the log of injury rates based on a time trend, a regional variable, status of a prevailing wage law, and the unemployment rate. It has a low to very low R 2 statistic (.16 to .49). The way the model is constructed, if in the years before prevailing law repeal for states within the same region (so no regional control variable) and the same time frame (eliminating differences in secular trend), states have the same unemployment rate (which, within the regions is an acceptably close estimate) their injury rates (or the log of their injury rates) will differ from one another only based on status of prevailing wage law: States that never had one should show higher rates than states that do have one (even if they will repeal it later). The actual statistics show, however, that such is not the case. BLS Region IV comprises four states that never had laws and four that had them in the period 1975-1978. The Utah regression model says the "never had" states should have higher injury rates. Here are the figures for the "never had" states: Georgia, no report: South Car- olina, 11.4; North Carolina, 12.2; Mississippi, 13.6; the figures for the "had law" states: Kentucky, 14.2; Alaska, 15.1; Tennessee, 15.8, Florida, 17.8. Clearly, the injury rates in "'never had" states are lower. Simi- lar results obtain in Region VIII, where North and South Dakota are substantially below their "'have law" counterparts in Wyoming, Colorado, Montana, and Utah. In other words, in all cases where statistics are available to check, the model not only does not work, it works backwards.

48C. Culver, Construction Fatalities: Camparison of Nonunion and Union Contractors (Rosslyn, Va.: National Center for Construction Education and Research, 1995), Table 2 gives comparison of union and nonunion contractor fatalities for the years 1985-1993. In every year, the union fatality rate is three to six percentage points higher than the nonunion rate.

49With respect to death rates, OSHA's Analysis ~ Construction Fatalities - - The OSHA Data Base 1985 1989, p. 18, notes: " . . . 30 percent of the fatalities occurred at union worksites, 70 percent at nonunion worksites. For that year, union membership accounted for 22 percent of the workforce, 78 percent was nonunion. The distribution of fatalities among union and nonunion worksites is similar to the composition of the construction workforce in terms of union and nonunion workers for the 5-year period." It also notes (p. 19) that "The percentage of fatalities for the various size construction firms is similar to the representation of the construction workforce in terms of firm size." There is, of course, no statement about prevailing wage states, but a rough correlation between prevailing wage status and unionization can safely be assumed.

5°See Thieblot (1985), pp. 93-113. Although the Utah study cites this work seven times, and its authors can therefore be presumed to be familiar with its savings estimates restated here, one of them leads off a position paper read to the Ohio legislature thus: "It has been claimed that the states can save 20 percent or more on total construction costs by eliminating prevailing wage regulations. This claim is false . . . . "' (R Philips, Wages and Benefits as a Percent of Net Total Costs in the Construction Industr3; Economics Department, University of Utah, undated, p. 1.) Philips then attacks this straw man with understandable S u c c e s s .

51Professo r Philips supposes (Wages and Benefi ts . . . undated, fn. 4): "'The historic union-nonunion wage rate differential in the United States has remained fairly constant at around 20 percent." The Congressional Budget Office, to the contrary, states: "'The ratio of cash wages for union construction workers to those for nonunion construction workers was 1.62 in 1993, as compared with 1.72 in 19837" (Letter from .lune O'Neill, Director, Congressional Budget Office, to Honorable Cass Ballenger, U.S. House of Representa- tives, April 21, 1995, p. 3.) Adding in fringe benefits would make the ratios even higher.

52The variations in earnings from state to state can be very large and are preserved in this model. In 1993, the lowest average weekly wage was reported by the Bureau of Labor Statistics (in Employment and Earnings,


1993) for employees in South Dakota, at $358 per week. The highest, excluding the special case of the District of Columbia ($754 per week) was Connecticut, 1.8 times higher at $638 per week. For construction workers, the lowest was found in Arkansas ($395) and the highest in Alaska ($846). These differences may result from historical patterns, union strength, population density, urbanization, or other causes.

53See endnote 16 for taxonomy. Notice that the repeal states, in the pre-repeal time period, showed ratios consistent with the fact that different repeal states had prevailing wage laws of differing severity.

54Although there is no way to verify this short of actual repeal, there is no reason to believe it would not be true. Indeed, most state prevailing wage laws would probably follow a repealed federal law into obliv- ion. Furthermore, the observed relative earnings impact in repeal states occurred as though all public works jobs were affected, although federal projects and joint federal-state ones continued to be constructed under Davis-Bacon rates, so the opposite is also likely to occur.

55According to the Bureau of Economic Analysis, U.S. Department of Commerce, the national income without capital consumption adjustment of the construction industry in 1993 was $228 billion. The Inter- national Trade Administration of the U.S. Department of Commerce reports federal and federal-grant outlays for construction in fiscal 1993 to be $47.2 billion. Hence, Davis-Bacon would cover 21 percent of the total. This is not evenly distributed state by state, but should be roughly proportional to the number of construction workers in each state.

Documents

A new evaluation of impacts of prevailing wage law repeal