Capital Bill Testimony-2015
Content
Capital Bill Testimony
Professor of Economics at CSU-Pueblo.
Former Director of CBER.
Conducted research for the local Chamber, companies, nonprofits, government agencies, and
labor unions.
Currently participate in Economic Forums sponsored by US Bank.
Peer-reviewed research on PW has been sufficiently rigorous to appear in leading national and
international scholarly journals.
White paper responds to VDOL interest in studies from other states that adopted DavisBacon PW.
Before discussing previous research I’d like to discuss the intuitive understanding of wages and
costs and the relations between wages, labor productivity, and inflation.
We think that when wages increase, so do production costs and the prices of goods.
Follower of the financial news that wage rates can be an indicator of inflation.
Current low wage growth contributes to low inflation because labor costs are about 2/3 of all
production costs for the overall economy.
If wages rise and so does labor productivity, production costs and product prices are stable.
Important differences and similarities in the construction industry.
Labor costs are a high percent of total costs for the overall economy, but a low percent in the
construction industry.
Economic Census of Construction. A survey of contractors.
Labor costs = wages and benefits.
VT: All construction = 25%. For buildings covered by VT’s PW (commercial and institutional)
= 24%
Same in other states: Professor Phillips’s data for various types of construction in KY = 17% to
20%
CO Highway construction = 22%.
White paper cites various studies indicating that when wages increase in the construction
industry:
A) Greater use of skilled labor
B) Increased use of equipment
C) Lower material costs (implying more efficient construction when wages are higher).
Two things to point out:
1. Caution with labor cost calculators: Last session estimate cost effect of higher wage rates,
holding labor and equipment use constant.
Not supported by what we observe in the industy.
I understand the desire to use data relevant to VT, but this is not a reliable method
It would not be acceptable for anyone familiar with the industry or research.
2. Since labor costs are a low percent of total construction costs, productivity does not need
to increase much to offset prevailing wage rates.
This is why the preponderance of research indicates that PW are unrelated to construction costs.
Not aware of any study of a state adopting Davis-Bacon prevailing wages.
Several examine related issues:
A) My current research on highway resurfacing projects in Colorado:
From at least the mid 1990’s to 2002 union rates prevailed the jobs involved in resurfacing.
In April of 2002 to 2011, average rates prevailed for 11 of 13 occupations.
18% reduction in hourly compensation for 11 jobs.
No difference in cost of federal projects relative to state funded resurfacing work.
No difference in the level of bid competition
When I examine contractors who move between federal projects and state projects, no difference
in costs even tho they are moving between Davis-Bacon and market wage rates.
B) Introduction of PW in BC in the early 1990’s:
PW rates 20% higher than nonunion rates.
No change in the cost of covered projects relative to privately funded construction (schools and
assorted other buildings).
Other studies:
Howard Wial: A change in the Pennsylvania policy from union rates to union and average
rates. No taxpayer savings on construction costs.
Peter Phillips: School construction in Michigan, Ohio, and KY in the 1990s when PWLs
changed in these states. No change in school construction costs was PW changes.
Dunn, Quigley and Rosenthal: Introduction of PW to low income housing in Ca adds from 9
to 37% to construction costs. Multiple problems with this study.
Provision of health insurance to the industry.
Fringes do not prevail for all sections of VT.
Contractors that do not provide fringes shift costs to tax payers and hospitals.
Professor of Economics at CSU-Pueblo.
Former Director of CBER.
Conducted research for the local Chamber, companies, nonprofits, government agencies, and
labor unions.
Currently participate in Economic Forums sponsored by US Bank.
Peer-reviewed research on PW has been sufficiently rigorous to appear in leading national and
international scholarly journals.
White paper responds to VDOL interest in studies from other states that adopted DavisBacon PW.
Before discussing previous research I’d like to discuss the intuitive understanding of wages and
costs and the relations between wages, labor productivity, and inflation.
We think that when wages increase, so do production costs and the prices of goods.
Follower of the financial news that wage rates can be an indicator of inflation.
Current low wage growth contributes to low inflation because labor costs are about 2/3 of all
production costs for the overall economy.
If wages rise and so does labor productivity, production costs and product prices are stable.
Important differences and similarities in the construction industry.
Labor costs are a high percent of total costs for the overall economy, but a low percent in the
construction industry.
Economic Census of Construction. A survey of contractors.
Labor costs = wages and benefits.
VT: All construction = 25%. For buildings covered by VT’s PW (commercial and institutional)
= 24%
Same in other states: Professor Phillips’s data for various types of construction in KY = 17% to
20%
CO Highway construction = 22%.
White paper cites various studies indicating that when wages increase in the construction
industry:
A) Greater use of skilled labor
B) Increased use of equipment
C) Lower material costs (implying more efficient construction when wages are higher).
Two things to point out:
1. Caution with labor cost calculators: Last session estimate cost effect of higher wage rates,
holding labor and equipment use constant.
Not supported by what we observe in the industy.
I understand the desire to use data relevant to VT, but this is not a reliable method
It would not be acceptable for anyone familiar with the industry or research.
2. Since labor costs are a low percent of total construction costs, productivity does not need
to increase much to offset prevailing wage rates.
This is why the preponderance of research indicates that PW are unrelated to construction costs.
Not aware of any study of a state adopting Davis-Bacon prevailing wages.
Several examine related issues:
A) My current research on highway resurfacing projects in Colorado:
From at least the mid 1990’s to 2002 union rates prevailed the jobs involved in resurfacing.
In April of 2002 to 2011, average rates prevailed for 11 of 13 occupations.
18% reduction in hourly compensation for 11 jobs.
No difference in cost of federal projects relative to state funded resurfacing work.
No difference in the level of bid competition
When I examine contractors who move between federal projects and state projects, no difference
in costs even tho they are moving between Davis-Bacon and market wage rates.
B) Introduction of PW in BC in the early 1990’s:
PW rates 20% higher than nonunion rates.
No change in the cost of covered projects relative to privately funded construction (schools and
assorted other buildings).
Other studies:
Howard Wial: A change in the Pennsylvania policy from union rates to union and average
rates. No taxpayer savings on construction costs.
Peter Phillips: School construction in Michigan, Ohio, and KY in the 1990s when PWLs
changed in these states. No change in school construction costs was PW changes.
Dunn, Quigley and Rosenthal: Introduction of PW to low income housing in Ca adds from 9
to 37% to construction costs. Multiple problems with this study.
Provision of health insurance to the industry.
Fringes do not prevail for all sections of VT.
Contractors that do not provide fringes shift costs to tax payers and hospitals.
