Answering the Opponents of Prevailing Wage:

The Misleading Wage Differential Studies

Prevailing wage opponents take the Jeopardy approach to economic analysis: Start with the preferred
answer of cutting wages then ask what the question is.
One of the most common tactics used by prevailing wage opponents is to produce overly simplified
and misleading wage differential studies to attack prevailing wage with outlandish and
mathematically dubious claims.
The fact is that construction labor costs on most projects fall between 20 and 25% yet these
studies consistently claim that lower wages would result in savings greater than the wages and
benefits earned by a projects construction workers.
The only way you could make these claims work would be if all construction workers on the project
worked for free or paid to go to work! Put simply, this is mathematically impossible.
These studies make the oversimplified and unrealistic, yet seductive, argument that prevailing wage
laws increase construction costs and are therefore a bad deal for taxpayers who could simply build more
schools or sewage treatment plants for the same money.
These propaganda exercises dont use actually existing wage rates for determining construction
costs, which actually happens with prevailing wage and Davis-Bacon surveys. Instead, they use
aggregate wage rates from the Bureau of Labor Statistics and state employment agencies, which
include all workers performing a particular occupation, regardless of their skill level, their industry
(handyman vs. commercial framing), or the type of construction theyre performing.
Second, these studies make a huge and misleading assumption that all of the savings from
using lower wages will simply be returned to the taxpayers! And then more magic happens:
Government would then use these savings to build more schools and sewer plants. As we all know,
these arguments have no basis in reality.
Independent legislative analysts know better than to trust flawed and biased wage differential studies.
In March 2015, an analyst for the Wisconsin Legislative Fiscal Bureau reviewed the articles written
on prevailing wage and came to the following conclusion:
A review of the literature related to prevailing wages and government contracting costs
reveals three main research categories:
a. wage differential approach,
b. cross-sectional analysis ("with and without-law" comparisons), and
c. time series analysis ("before and after" comparisons)
The wage differential approach consists of determining if wages under prevailing wage laws are
higher, and assumes that the increase in wages is directly passed on to the government in higher
contract costs. This is an intuitive approach and is consistent with the notion that if wage rates
increase, so will the total construction costs. However, such approaches typically assume no
change in the behavior of contractors in the face of higher wages and, therefore, pass the entirety
of the increase in labor costs on to governments in the form of higher contract costs. This
approach typically assumes that productivity, material costs, and the labor share of construction
all remain constant. In addition, these studies typically do not control for other factors such as
project location, project type, or time of year which also can significantly affect costs.
[Emphasis added].