WILL Blog | Flanders: Review of New Study That Concludes Repeal of Prevailing Wage Law Would “Cost” Taxpayers

Published on: June 21, 2017

Yesterday Democrats in the Wisconsin state legislature joined with union advocates to push the findings of a new study on the ‘cost’ of repealing Wisconsin’s prevailing wage law.  According to the study, the repeal of the prevailing wage laws will result in lower wages for construction workers, which will cause construction workers to use more social welfare programs.  Because of this this, the study, conducted by the Midwest Economic Policy Institute (MEPI), concludes that the repeal of prevailing wage will cost taxpayers more than $336 million annually.

But – as Lee Corso says – “not so fast, my friend!” (we are, after all, 65 days until kick-off).  The study uses a number of faulty and “grossly overstated” assumptions which calls the findings into question. Consider:

  1. By their own admission, the authors of the study use “grossly overstated” assumptions on wage decrease.

In concluding that repealing prevailing wage will cost $336 million annually, the MEPI relies on the assumption that prevailing wage reform will reduce wages by 44%.  Yet, MEPI itself admits in the study that this assumption is “grossly overstated” and that the sources of information used to create the 44% figure is “entirely incorrect.”  In fact, they concede that other academic research places the wage premium from prevailing wage laws at around 14%, and provide far smaller estimated costs based on that figure.

But even as they suggest the number is no good, MEPI still uses the 44% wage reduction figure in the headline of their press release as the big finding of the report.  Presumably they do so because a Republican legislator once used the larger figure to promote repeal.  But a policy research organization should not play games of partisan “gotcha.”  It is bizarre.  And misleading to proclaim that repeal will impose “costs” when – in the fine print – you admit it will not.

And despite such clear warnings about the quality of the analysis, legislators like Senator Shilling and Representative Barca have also touted the unrealistic estimates.  This means that they either a) only read the headline, b) did not understand the report or c) are engaged in a willful effort to mislead the public and obfuscate the truth. Let’s hope it’s only one of the first two.

  1. The study assumes construction workers are in a family of four and no other members of the family work.

This is a surprisingly antiquated assumption for research being touted by progressives.  According to data from the Pew Research Center, about 60% of families with children under 18 are dual income—where both parents have some sort of employment.  There is no reason to think these numbers would differ substantially for the construction industry.  MEPI ignores this fact and their analysis, a fact that would seriously reduce the increase in access to governmental services.

  1. The study assumes workers will fully utilize all available welfare services.

Even if we grant the unrealistic assumptions that the families of construction workers look like its 1956, the study asks the reader to make a further unrealistic leap taken to assume that everyone eligible for services will take advantage of them.   This just simply isn’t the case – whether due to pride in their self-worth or a lack of knowledge about eligibility.  A 2015 report by the non-partisan Congressional Research Service shows that more than 20% of people eligible for at least one social welfare program in the United States don’t fully utilize available welfare services.  The study should have taken this into account.

  1. The study does not realistically reflect labor market conditions.

And there is a more fundamental problem. The money that is not paid to construction workers will not disappear whether it is saved by the government , returned to taxpayers or passed on to construction companies.  It will go somewhere in the state’s economy, whether to government to invest in other projects, to taxpayers to support their families to additional workers who now can be employed by companies who need not “overpay” for workers or to businesses to invest and grow the state’s economy. MEPI is making the curious argument that the state of Wisconsin and its taxpayers are better off by paying more than necessary for the labor required on roads and public projects.   Allowing market forces, rather than the heavy hand of government, to determine what wages a particular job requires could be a boon to the construction industry and construction employment in the long run.

Because the study uses “grossly overstated” and faulty assumptions, policymakers and the public should refrain from using it to score political points.