Chris IKORCC Prevailing Wage Presentation

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  • Prevailing Wage And Applications to Indianas 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 (RepublicanPA) Rep. Robert Bacon (RepublicanNY) President Herbert Hoover (Republican IA)

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


  • 3

    Workers Benefit from Prevailing Wages

    Higher wages

    Personal and family health insurance

    Pension coverage

    Workers comp &

    unemployment insurance coverage

  • 4

    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









    ry p

    er w



    R Sq Linear = 0.193

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

    Rented machinery per worker










    e ad


    per c






    R 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

  • 5

    High-wage, capital intensive construction raises labor productivity

    Shovels vs.


    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


  • 7

    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


  • 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.

  • 10

    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?

  • 11

    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 arent on the front line of recovery, James Varney, Times-Picayune, October 18, 2005 , New Orleans,

    Section: National, p. 1;

  • 12

    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 youre only willing to pay poverty wages. But in the wake of the disaster, President Bush suspended the Davis-Bacon Act.In essence, theres 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, isnt it. New Orleans Times-Picayune editorial under the headlineRebuilding

    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.

  • 13

    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




    1991.0 1993.5 1996.0 1998.5 2001.0

    No Law

    No Law

    No Law




    Natural Experiment of the Effects of Prevailing Wages on Costs

  • 14

    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


    Statistically Significant Difference?


    New Public SchoolsReal (Inflation Adjusted) Square Foot Cost

    Rural Schools Urban Schools

    Looking at all 391 schoolsMI, OH, KY

  • !15

    Simply Tracking Kentucky & Ohio Finds No Cost Savings

    Median Cost per Square Foot of New Elementary Schools


    t per








    1992 1993 1994 1995 1996 1997 1998 1999 2000


    Period I: Ohio Has Law

    Period II: Kentucky Has Law

    Ohio Eliminates LawKentucky Adds Law

    Show me the money! Kentucky implemented; Ohio repealed

  • !16

    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 .

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

    Again NO statistically Significant Difference in Square Ft. Costs











    Law No Law IA

    Elementary Middle School High School


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

    Prevailing Wage Laws & Construction Productivity

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



  • 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


  • 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.


  • 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.


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

    Facilities Services: "The workers probably had a