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
2
Workers Benefit from Prevailing Wages
Higher wages
Personal and family
health insurance
Pension coverage
Workers comp
&
unemployment
insurance
coverage
3
As Wages Rise, Contractors Substitute Capital
for Labor
Source: US Census of Construction, 2002
$150,000
$140,000
Value added per construction worker
Rented machinery per worker
$4,000
$3,000
$2,000
R Sq Linear = 0.193
$1,000
$130,000
$120,000
$110,000
$100,000
$90,000
R Sq Linear = 0.261
$80,000
$25,000.00
$30,000.00
$35,000.00
$40,000.00
$45,000.00
Average construction worker income
Higher wages lead to more
machinery per worker in construction
$1,000
$2,000
$3,000
$4,000
Rented machinery per worker
More machinery per worker leads to
higher value added per worker
4
High-‐wage, capital intensive construction raises
labor productivity
Shovels
vs.
Backhoe
Wheel-‐
barrow
vs.
Cement
truck
5
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, USA
San Francisco, USA
Los Angeles, USA
San Diego, USA
Minneapolis/St. Paul/Rochester USA
Austin, USA
Boston, USA
New York/New Jersey, USA
Philadelphia, USA
Baltimore/Washington, DC, USA
No law states
–
Research Triangle NC, USA
•
http://www.mbbnet.umn.edu/scmap/
biotechmap.html
Peter Philips, Professor and Chair, Economics
Dept, Univ. of Utah
6
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
7
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
8
Kansas repeals prevailing wage, 1987
apprenticeship 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.
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?
10
Influx of Out-‐of-‐State Workers
Wages 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;
11
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.
12
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
No Law
Ohio
Law
Michigan
Law
1991.0
1993.5
Law
No Law
No Law
Law
1996.0
1998.5
2001.0
Natural Experiment of the Effects of Prevailing Wages on Costs
13
No Meaningful or Statistically Significant
Difference in Costs
Looking at all 391 schools—MI, OH, KY
a
1
2
3 No Law
4 Law
5 t-test
Statistically
Significant
6 Difference?
b
Mean
$96
$98
-0.76
New Public Schools
Real (Inflation Adjusted) Square Foot Cost
c
d
e
f
g
Rural Schools
Urban Schools
Standard Deviation Number Mean Standard Deviation Number
$26
161 $114
$36
40
$24
104 $114
$34
86
0.05
No
No
14
Simply Tracking Kentucky & Ohio
Finds No Cost Savings
Median Cost per Square Foot of New Elementary Schools
110
Ohio Eliminates Law
Kentucky Adds Law
Cost per Sq Foot
83
Kentucky
Ohio
55
Period II:
Kentucky Has Law
Period I:
Ohio Has Law
28
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
“Show me the money!”
Kentucky implemented; Ohio repealed
!15
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 .
!16
Again NO statistically Significant Difference in
Square Ft. Costs
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
Law
No Law
Elementary
Middle School
IA
High School
Peter Philips, Professor and Chair, Economics
Dept, Univ. of Utah
17
Prevailing Wage Laws &
Construction Productivity
More skilled workers are safer, work
more efficiently and deliver a better
producty
Peter Philips, Professor and Chair, Economics
Dept, Univ. of Utah
18
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
19
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.
20
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.
21
$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."
•
•
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, “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.
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.
22
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
23
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
Investigators report growing trends
undermining a quality workforce
“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.”
“Labor Brokers Cut Costs, Corners” -‐
Denver Post, February 16, 2003
25
Prevailing Wage Laws Stop Tax Avoidance
Contractor Strategies
•
Independent Contractors as a Percent
of Employees in Construction
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
46%
46%
41%
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.
–
Iowa
18 Other No-Law States
Prevailing Wage Law
States
5% of Iowa’s construction labor force
would have payroll taxes paid on them
with prevailing wage regulations
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.
Peter Philips, Professor and Chair, Economics
Dept, Univ. of Utah
26
• 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
27
Health Insurance
Shifts costs off the taxpayer
Peter Philips, Professor and Chair, Economics
Dept, Univ. of Utah
28
The distribution of health insurance among
union and nonunion construction workers
Figure5. Union/nonunion & Health Insrance in the Construction Industry
50
45
40
percentage
35
30
nonunion
union
25
20
15
10
5
0
No HI
Private purchase
spouse only
none
part
all
categories
Peter Philips, Professor and Chair, Economics
Dept, Univ. of Utah
29
The Next Step is to Act
• 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