Chris IKORCC Prevailing Wage Presentation

Prevailing Wage And Applications to Indiana’s Common Construction Wage

Prevailing Wage Laws Among Oldest Labor Market Regulations

• 1868 8-‐Hour Day Law prevailing wage provision • 1891 Kansas prevailing wage law on public works • 1931 Davis Bacon Act

– Senator John Davis (Republican—PA) – Rep. Robert Bacon (Republican—NY) – President Herbert Hoover (Republican IA)

• 1935 Indiana prevailing wage law (now Common Construction Law) – Public jobs now >$350,000 total construction cost

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Workers Benefit from Prevailing Wages

Higher wages

Personal and family health insurance

Pension coverage

Workers comp &

unemployment insurance coverage

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As Wages Rise, Contractors Substitute Capital for Labor

$25,000.00 $30,000.00 $35,000.00 $40,000.00 $45,000.00

Average construction worker income

$1,000

$2,000

$3,000

$4,000

Ren

ted

mac

hine

ry p

er w

orke

r

R Sq Linear = 0.193

$1,000 $2,000 $3,000 $4,000

Rented machinery per worker

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

$150,000

Val

ue a

dded

per

con

stru

ctio

n w

orke

rR Sq Linear = 0.261

Higher wages lead to more machinery per worker in construction

More machinery per worker leads to higher value added per worker

Source: US Census of Construction, 2002

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High-‐wage, capital intensive construction raises labor productivity

Shovels vs.

Backhoe

Wheel-‐barrow vs.

Cement truck

Peter Philips, Professor and Chair, Economics Dept, Univ. of Utah

High Wage Industries Need High Wage Construction

University of Iowa Research Park BioVentures Center

World Class Competitive Industries Require World Class Infrastructure• Local construction capabilities enable or

constrain the industries which rely on modern infrastructure

• US Biotechnology Clusters • Prevailing wage law states:

– Seattle, USASan Francisco, USALos Angeles, USASan Diego, USAMinneapolis/St. Paul/Rochester USAAustin, USABoston, USA New York/New Jersey, USAPhiladelphia, USABaltimore/Washington, DC, USA

• No law states – Research Triangle NC, USA

• http://www.mbbnet.umn.edu/scmap/biotechmap.html

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Taxpayers Benefit from PW Benefits

• Construction workers are 5-‐7% of labor force – When construction workers get health insurance, less pressure on public health system

– When construction workers get pensions, less pressure on public care for the elderly

– When contractors pay into workers comp & unemployment system, funds remain viable

Las Vegas Study Shows Nonunion Construction Workers Rely on Public Hospitals

• All uncompensated [health] care costs [in Clark county] attributable to [uninsured] employed construction workers over the period amounted to $6.3 million and the total cost of uncompensated care to the employed and their dependents was over $37 million for the years 1998-‐2000. – Jeff Waddoups of the University of Nevada at Las Vegas

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Kansas repeals prevailing wage, 1987apprenticeship training falls afterward

• After 4 years, construction apprenticeship training falls by 38%.

• Minority apprenticeship falls by 54%. • Open shop contractors accounted for only 12% of apprentices being trained.

• Open shop share of market grows after repeal, apprenticeship training plummets.

Source: Peter Philips, “Kansas and Prevailing Wage Legislation”, University of Utah, February 1998.

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Do Prevailing Wages Protect Local Workers? The Katrina Suspension:

• On September 7, 2005, less than two weeks after Hurricane Katrina, President Bush suspended the Davis Bacon Act.

• Contractors were now free to pay any wage above the federal minimum of $5.25 for workers to rebuild from the devastation.

• What happened?

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Influx of Out-‐of-‐State WorkersWages Drop

• Immigrant workers rile New Orleans; Rules shelved, crews labor for meager pay – Mary Lou Pickel, The Atlanta Journal-‐Constitution, October 19, 2005

Section: News, p. 1A. • New Orleans rebuilds as tensions rise; Influx of Latino workers

has local businesses and contractors feeling left out, – Kelly Brewington, The Baltimore Sun, October 14, 2005 Section:

Telegraph, p. 1A; • Nuevo Orleans? An influx of Hispanic workers in the wake of

Hurricane Katrina has some officials wondering why locals aren’t on the front line of recovery, – James Varney, Times-‐Picayune, October 18, 2005 , New Orleans,

Section: National, p. 1;

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Times -‐Picayune Editorialize Against D-‐B Suspension

• [W]e are already moving quickly and boldly in the wrong direction….[Y]ou can hardly entice [our citizens] back if you’re only willing to pay poverty wages. But in the wake of the disaster, President Bush suspended the Davis-‐Bacon Act….In essence, there’s no ceiling preventing sky-‐high profits for these [out-‐of-‐state] contractors and not much of a floor to ensure that wages to workers are not abysmally low. There is an intelligent way to rebuild our city. This, however, isn’t it.” – New Orleans Times-‐Picayune editorial under the headline—“Rebuilding

effort should be localized”: • Lolis Eric Elie, Times -‐Picayune, New Orleans, Section: Metro, p. B1

• On October 26, 2005, after pressure from both Democrats and Republicans, Bush rescinded his emergency order and restored the prevailing wage requirement.

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A Natural Experiment

• 1996 Kentucky applied PWs to schools • 1997 Ohio eliminated PWs on schools • 1994 Michigan suspended PWs on schools • 1997 Michigan re-‐implemented PWs on schools

Kentucky

Ohio

Michigan

1991.0 1993.5 1996.0 1998.5 2001.0

No Law

No Law

No Law

Law

Law

LawLaw

Natural Experiment of the Effects of Prevailing Wages on Costs

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No Meaningful or Statistically Significant Difference in Costs

a b c d e f g12 Mean Standard Deviation Number Mean Standard Deviation Number3 No Law $96 $26 161 $114 $36 404 Law $98 $24 104 $114 $34 865 t-test -0.76 0.05

6

Statistically Significant Difference?

NoNo

New Public SchoolsReal (Inflation Adjusted) Square Foot Cost

Rural Schools Urban Schools

Looking at all 391 schools—MI, OH, KY

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Simply Tracking Kentucky & Ohio Finds No Cost Savings

Median Cost per Square Foot of New Elementary Schools

Cos

t per

Sq

Foot

0

28

55

83

110

1992 1993 1994 1995 1996 1997 1998 1999 2000

KentuckyOhio

Period I: Ohio Has Law

Period II: Kentucky Has Law

Ohio Eliminates LawKentucky Adds Law

“Show me the money!” Kentucky implemented; Ohio repealed

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Results Confirmed in Nation-Wide Study

• Looking at over 4000 new schools built in all states over the same period – No practical or statistically significant cost savings

associated with prevailing wage law repeals – Considerable savings found when schools built during

construction downturns – Breaking ground in winter raised costs !!

• Hamid Azari-Rad, Peter Philips, and Mark Prus, “Making Hay When It Rains: The Effect Prevailing Wage Regulations, Scale Economies, Seasonal, Cyclical And Local Business Patterns Have On School Construction Costs,” Journal of Education Finance, 27 (SPRING 2002). 997-1012 .


Again NO statistically Significant Difference in Square Ft. Costs

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Law No Law IA

Elementary Middle School High School

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Prevailing Wage Laws & Construction Productivity

More skilled workers are safer, work more efficiently and deliver a better

producty

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Old Capitol in Iowa City awarded to out-‐of-‐state firm

• August, 2001, Enviro Safe Air from South Dakota (a non-‐prevailing wage law state), as the low bidder at $105,876 began work on asbestos removal

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No background check had been done on Enviro Safe Air

• A background check would have revealed that Enviro Safe Air had received 11 state code violations for the way it removed asbestos in the previous ten years having paid $10,000 in fines.

• In May, prior to receiving the Old Cap contract, Enviro Safe Air had settled a lawsuit out-‐of-‐court over asbestos removal violations.

– Associated Press, State and Local Wire, “Repairs to Old Capitol escalate to more than $5 million,” November 30, 2001.

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Falling Behind, Orders Workers to Remove Paint & Asbestos with Heat Guns & Torches

• Fritz Miller of Renaissance Restoration of Illinois (a prevailing wage law state) wrote an email to Al Bawden, a project manager:

• “I have personally witnessed Enviro Safe personnel using open flame torches to remove paint on the cupola. This is an unsafe method of removal, and we have great worry that a catastrophic fire will result from this practice.”

– Associated Press, State and Local Wire, “Ill-‐fated Old Capitol in Iowa City was plagued with problems from the beginning, a review of documents related to the project shows,” January 20, 2002.

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$100k Job Costs $5 Million• Drew Ives director of the University of Iowa

Facilities Services: "The workers probably had a lot of pressure from the home office to pull off the job because it was costing them to have people there."

• Associated Press, State and Local Wire, “Ill-‐fated Old Capitol in Iowa City was plagued with problems from the beginning, a review of documents related to the project shows,” January 20, 2002.

• Indeed, OSHA alleged that Enviro Safe Air instructed workers to use heat to remove material containing asbestos. This is not only a fire hazard.

• Associated Press, State and Local Wire, “Asbestos removal company faces more citations,” February 28, 2002.

• “at their own admission (has) no experience removing paint coatings and no experience working on historic structures.”

– Terry Cole, president of Renaissance Restoration

• Associated Press, State and Local Wire, “Repairs to Old Capitol escalate to more than $5 million,” November 30, 2001.

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Labor Brokers rent low-‐wage workers

• “Raiteros” drive groups of low-‐wage workers for a fee

• Mostly illegal immigrant • Brokers subcontracted by

temp agencies contracted to company. Employees misclassified as independent contractors

“Major American Companies Benefit From Undocumented Workers” -‐ ProPublica/Marketplace, April 2013

Labor brokers cut costs, corners: Fast-growing firms exploit immigrants to feed

construction industry

Nobles, who initially defended his $6 million a year company, said he is rethinking many of his practices as the result of inquiries by The Post and conversations with his lawyers. But, he said, in an industry that depends on undocumented immigrants for much of its labor, abuses will continue because they are profitable.

“You don’t have to worry about workman’s comp payments with Mexicans because they are afraid to go to the hospital. They’re not going to file a big claim and sue you like the Americans are. That’s what this boils down to,” Nobles said. “We have these people intimidated.”

Labor brokers cut costs, corners: Fast-growing firms exploit immigrants to feed construction industry, Denver Post, February 16, 2003

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Investigators report growing trends undermining a quality workforce

“Labor Brokers Cut Costs, Corners” -‐ Denver Post, February 16, 2003

“Brokers often can evade scrutiny on big construction sites, where a builder typically has numerous subcontractors, each of whom may — unbeknownst to the contractor — farm out parts of a job to still other subcontractors. That structure naturally pushes down — and can intentionally be used to obscure — responsibility for wages, taxes and liability.”

“Home-‐Building Boom Relies on Illegal Workers” – Seattle Times, September 17, 2006

“Companies that provide mostly illegal immigrant laborers to commercial building sites nationwide are thriving even as they flout the country's most basic labor laws.... In a growing number of states, the companies dominate building specialties such as drywall installation, one of the dirtiest jobs in commercial construction.”


Prevailing Wage Laws Stop Tax Avoidance Contractor Strategies

• OMAHA (AP) -‐-‐ Miguel is paid by the hour. He is told when to start and finish his workday, when to take breaks and what to do on his shift. He didn't bid for the job of hanging drywall, and he doesn't risk profit or loss. He wears a red hard hat bearing the "E & K" insignia of an Omaha contractor, Eliason & Knuth Drywall Co. He cashes a paycheck cut by a second company, an Atlanta-‐based labor broker called Eagle Managed Subcontractors. By all appearances, Miguel is somebody's employee. Yet before he could work on the new Omaha convention center, Miguel, as we're calling him, had to sign a contract declaring himself an independent subcontractor.

– Steve Jordon, Cindy Gonzalez, “When a worker is not an employee When illegal immigrants are classified as subcontractors, taxes tend to disappear. Who's the boss?” Omaha World Herald (Nebraska),

• April 27, 2003 NEWS; p. 1A.

Independent Contractors as a Percent of Employees in Construction

46% 46%41%

0%5%

10%15%20%25%30%35%40%45%50%

Iowa 18 Other No-Law States Prevailing Wage LawStates

5% of Iowa’s construction labor force would have payroll taxes paid on them with prevailing wage regulations

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• Contractors get pushed out of the market • no government oversight once CW is eliminated

• Increase in cash pay and 1099 abuse • Legitimate NU contractors get hurt too

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Health Insurance

Shifts costs off the taxpayer

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The distribution of health insurance among union and nonunion construction workers

Figure5. Union/nonunion & Health Insrance in the Construction Industry

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30

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No HI Private purchase spouse only none part allcategories

perc

enta

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nonunionunion

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• Advocate – Prevent opponents from pushing further – Stop piecemeal repeal !

• Contact your elected officials – let them know you support a common construction wage for

the sake of the industry – Important to maintain a quality workforce !

• Oppose incremental weakening, like raising the threshold where common construction wage kicks in – Already raised twice in past two years – $150,000 -‐-‐> $250,000 -‐-‐> $350,000

The Next Step is to Act

Questions?

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Chris IKORCC Prevailing Wage Presentation