Ask The Experts: What to do with the prevailing wage?

Prevailing wage laws may not get the attention that minimum wage debates do, but state and federal laws mandating certain wages and benefits for those working on public construction projects have been a point of contention between lawmakers, advocates and workers for years. 

Both the state Prevailing Wage Act and the federal Davis-Bacon Act, passed in 1931, require construction workers to be paid a base wage – plus benefits – for any construction project that requires taxpayer dollars to complete. Proponents of the laws say the mandates result in higher wages and better standards of living, while critics argue that such requirements artificially inflate the cost of construction projects, leaving taxpayers to pick up the tab. 

City & State reached out to the following experts about the benefits and drawbacks of prevailing wage requirements: Frank Gamrat, executive director of the Allegheny Institute for Public Policy; Ryan Boyer, business manager of the Philadelphia Building & Construction Trades Council; Republican state Sen. Kristin Phillips-Hill; and Democratic state Sen. Christine Tartaglione, the minority chair of the Senate Labor & Industry Committee. The following responses have been edited for length and clarity.

How does the state’s Prevailing Wage Act affect workers and the economy as a whole?

Frank Gamrat: Prevailing wages were originally intended to increase the wages of local laborers and protect them from lower-wage immigrants. At the time, supporters of this legislation claimed that workers who were paid more would help spend the country out of the Great Depression. This argument gained momentum and eventually filtered its way down to the state level as more than 30 states followed suit and passed “little Davis-Bacon” laws. The unintended consequence of the law was to force non-union contractors to pay their workers union-scale wages. The end result of the federal and state-level Davis-Bacon laws is the increased cost of labor and, subsequently, of government projects, which are ultimately passed on to the taxpayers.

For the economy as a whole, the prevailing wage law is more of a signal to employers who are looking to locate or expand. It signals that the state is not afraid to meddle in the affairs of private businesses by issuing mandates that will likely raise the cost of doing business. It makes Pennsylvania very uncompetitive when compared to states that don’t have prevailing wage laws or right-to-work laws. As a result, Pennsylvania’s private job growth continues to lag the national average and that of states without such mandates.

Ryan Boyer: I think the state’s prevailing wage is a great law designed to protect area wages and standards to make sure that we don’t have unscrupulous contractors coming from other low-wage places, such as the South and the Sun Belt states. It rolled out area wages and standards, it gets workers more spending power, so it makes the economy more resilient. Here’s a fun fact about the prevailing wage in Pennsylvania: It was actually the small business contractors that wanted it because they wanted a fair shot at winning work. When it was first enacted, it was to fight back out-of-town competition, mainly from the South and certain parts of Appalachia, so that we could protect the area wages and standards so the workers could actually have decent pay. I think that today, with the haves and have-nots, it’s actually more important.

Kristin Phillips-Hill: Pennsylvania has had a prevailing wage requirement in place for over 60 years. Our state and our economy have drastically evolved over the last six decades, but this requirement still remains in place. In York County, for example, an out-of-state contractor is working on a major interchange project. The delay in the project has now exceeded the original project completion timeline. The project is now three years late. It’s unacceptable. If the goal of the original law was to protect Pennsylvanians from out-of-state contractors, it has clearly failed the people of York County.

Christine Tartaglione: It contributes to the creation of high-paying, family-sustaining jobs, both union and non-union. The Prevailing Wage Act also allows for both non-union and union contractors and employers that provide quality wages and safer conditions to be competitive in the bid process for public projects. These laws have also helped retain talent in the construction industry.

State lawmakers on both sides of the aisle have touted the state’s prevailing wage as a tool to create high-paying, blue-collar jobs with good benefits. What positive impacts do prevailing wage requirements have for the state?

Frank Gamrat: Even though many groups support the repeal of the Davis-Bacon Act, there are other special-interest groups that are steadfast in their support of it. Davis-Bacon gives union contractors an advantage over non-union contractors in the bidding for government projects. Davis-Bacon not only dictates the wages that must be paid to workers on government contracts, but it also dictates the hourly price for “fringe” benefits. Fringes for union workers are programs that are paid from trusts that have been built from dues payments and are not subject to payroll taxation. However, for the non-union firm, the absence of such programs means that fringes must be paid directly to the employee as a supplement to the hourly wage and thus subject to payroll taxes. Therefore, not only are non-union firms required to meet the wage being paid by union firms, but they must exceed them through fringe payments – and then must pay more in payroll taxes than their union counterparts. As a result, many non-union contractors pass on government projects, further biasing upward the cost of construction.

The Act not only raises the cost of labor, which many non-union firms cannot match, but it also imposes rigid, craft-based job classifications and restrictive apprenticeship regulations. This sharply limits an employer’s ability to hire and train unskilled workers. In many cases, these unskilled workers are minorities, which have historically been kept out of trade unions. It is believed that racism was a primary motivating factor in passing the Davis-Bacon Act. One purpose of the act was to prevent contractors from using African Americans from Southern states on projects in predominantly white Northern states. As one Congressman stated in 1931, it prevents contractors from using “cheap colored labor.”

Ryan Boyer: Well, it provides very high-paying, family-sustaining jobs with benefits so that the state of Pennsylvania doesn’t, in effect, subsidize some big companies. When you don’t pay people, then they become a drain on the state’s coffers. The prevailing wage rate says: “Let’s pay these people what they deserve, what the prevailing wage in the area is, and give them benefits – medical and health benefits – so that they become self-sufficient and not a ward of the state.” I think that’s important. When you have a good job, you send your kids to college, you spend more – all the tertiary effects – they’re unquantifiable. When people make a decent wage, they can actually do some investments, spending. They can invest in their children. They can invest in college. We’ll just have a better citizenry.

Kristin Phillips-Hill: I think prevailing wage should be an option – and not a mandate – for public works projects. If the elected decision-makers believe the benefit outweighs the cost, that should be their decision. As a former school director, the last thing any school board official wants is an unfunded mandate. This legislation provides a resource to our local officials to address the significant budget constraints they are under and allows them to maximize the investment made by taxpayers to address the greater public need within their community.

Christine Tartaglione: The Prevailing Wage Act is crucial for protecting high-paying jobs across the Commonwealth. It also helps indirectly by boosting the funds paid into the Unemployment Compensation Trust Fund. When times get tough, workers need a strong safety net behind them, as we’ve seen throughout this pandemic. Additionally, the health care benefits provided by prevailing wage jobs help reduce the number of individuals that apply for the state Medicaid system.

Critics of prevailing wage laws argue that they artificially inflate the cost of construction projects. What do you make of that claim?

Frank Gamrat: By their very existence, they are a mandated wage increase over what the market wage may be. But the real discrepancy happens when fringe benefits are added to the mix. Union contractors pay fringe benefits through programs that are run from trusts and are not subject to payroll taxation. However, for the non-union firm, the absence of such programs means that fringes must be paid directly to the employee as a supplement to the hourly wage and thus subject to payroll taxes. When adding the cost of the fringe benefits to the hourly wage, the average payment that is to be made to a worker under the prevailing wage law is pushed even higher.

Project costs are inflated over what they would be if projects were placed out to bid to all firms, union and non-union. Higher project costs reduce the pool of money available for infrastructure projects, fewer of them get completed and the list of needed projects grows.

Ryan Boyer: I think that’s a specious argument and it doesn’t work, because obviously when you have a prevailing wage, you have to fill out surveys and it’s the wages most frequently paid. So it isn’t artificial inflation. It makes a fair playing ground so everyone could play on a level playing field. No one is getting exploited, so it also protects the worker against unscrupulous bosses. It’s a very fair and transparent system – everyone knows what everyone gets paid for every job. You don’t get any more fair and transparent than that.

Kristin Phillips-Hill: We need to learn from the experience of other states that embarked on the reforms that I am supporting. For example, Ohio exempted school construction from its prevailing wage requirements. They found an aggregate savings of nearly $500 million, or 10.7%, over a five-year period. This translates into more public projects being completed at a cost that respects the taxpayers who pay for these projects.

Christine Tartaglione: Prevailing wage laws don’t artificially inflate costs of projects – they show the true cost of completing projects correctly the first time while ensuring workers receive fair wages, safer workplaces, and quality benefits. When unscrupulous contractors lowball bids, they don’t represent the cost of doing good business in Pennsylvania. They show what it would cost to cut corners and not provide safe and quality jobs. Furthermore, the vast majority of studies done comparing the costs of prevailing wages from states that have eliminated their prevailing wage laws show that there are no statistical savings on the overall cost of construction. However, they do show lower wages, less insurance coverage, less retirement savings, and a significant reduction in investment toward apprenticeship programs. We must also remember that labor only makes up around 18 to 22 percent of the total cost of a project, while materials, fuel, equipment, and engineering will make up a much larger share of the cost.

What impacts would a repeal of the state’s Prevailing Wage Act have on the state’s economy? What about workers?

Frank Gamrat: It would likely increase the number of jobs available and push wages upward without government intervention as firms compete for talent. We already see this competition result in higher wages as firms coming out of the pandemic have pushed wages up without that intervention. Furthermore, it would result in more construction projects being completed and more economic activity across the state.

Ryan Boyer: It would be horrible. You wouldn’t be able to get stuff done. Now is the absolute worst time as we face what people call the “Great Resignation” – I like to call it the “Great General Strike.” People have found that jobs that don’t pay good, family-sustaining, union wages, and sectors like construction, like hospitality – it doesn’t even pay them to work because they’re not being paid adequate wages. So if you repeal the Prevailing Wage Act, you’ll have fewer workers, and the cost of construction will go up because workers aren’t working for sub-standard wages, particularly when they’re working on roads and bridges; they know how important it is to connect Pennsylvania together and keep our roads and highways safe. You want the best workforce to do that. Do you want a bridge put up with a worker that’s not getting paid his right rate? Just think about that.

Kristin Phillips-Hill: If you apply the Ohio changes to how we monitor school construction projects in Pennsylvania – the benefits for taxpayers and our public school system are incredible. For example, school districts here spent more than $7 billion in school construction and renovation projects between 2000 and 2010. If you apply the saving percentage realized in Ohio here, that would amount to an additional $700 million that could be refunded to the taxpayers, stave off school property tax hikes, or flow directly into the classrooms.

Christine Tartaglione: Repealing the Prevailing Wage Act would let the rich get richer and the poor get poorer. Bad actors would underbid projects, and in turn underpay workers, which would decimate the middle class. It would also destroy apprenticeship programs and cripple local workforce development initiatives. It would also put workers’ safety in jeopardy. According to a recent study conducted by the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign, unionized construction workers were exposed to 34% fewer health and safety violations in 2019 than their non-union counterparts. If we repeal the Prevailing Wage Act, fewer unionized contractors and employers would be able to win bids for projects, making worksites less safe.