New Study Shows Prevailing Wage Does Not Increase Construction Cost

A new study by the Economic Policy Institute released the results of a study that they recently finished that found that prevailing wages do not create increased costs on government contracts. Nooshin Mahalia, the author of the study, also concluded that the most of the studies against prevailing wages against prevailing wages are flawed. This is because the studies start with the assumption that prevailing wages increase costs instead of testing if there are or nor not actual impacts to contract costs. The full research paper can be found here.

Here are a few quotes from the press release that I thought summarized the
The idea behind the prevailing wage is simple: a wage floor keeps big government projects from damaging the local economy by driving down wages and undermining living standards. A counter-argument has been raised, however, which claims that requiring contractors to pay the prevailing wage drives up the cost of the projects – a cost ultimately borne by the taxpayers. This claim, with its ring of plausibility, has already been used as grounds for repealing the prevailing wage requirements in some states.

There were five specific points mentioned how contractors manage projects that would not increase contract costs.

1. Prevailing wage regulations do not always increase wages, as some public contractors may pay at those rates without the regulation.
2. Labor costs, including benefits and payroll taxes, add up to about one-quarter of construction costs. Thus even a wage raise of 10%, for example, would only affect overall costs about 2.5%, making its impact small.
3. Improved productivity can offset higher wages. The better-skilled workers attracted by these wages might complete the job in less time, or the firms that hire them might introduce labor-saving technologies for the express purpose of offsetting higher labor costs.
4. Higher wages might be offset through other means, such as using lower-cost materials.
5. Contractors might offset higher wages by reducing their profits slightly.

In San Diego County, the City of Vista sought to avoid paying workers prevailing wages by becoming charter city. It will be interesting to see if Vista's race to the wage floor will provide them with the quality facilities and community benefits they are seeking.