Tuesday, June 17, 2008
That news report was on KARE 11 early in May, detailing how much we pay for labor outstate is creating excess costs for outstate projects:
The state already has prevailing wage rules for state-funded projects. Under the proposal before the Mankato City Council, the same rules would apply to city-funded project. The state sets the prevailing wage in dozens of job categories.
During initial discussion, there have been widely varying estimates of how much a local prevailing wage would add to project costs � from zero to some 40 percent.
Unions representing many of construction workers in the area argue that the prevailing wage rules used in state contracts don�t drive up the cost of projects.
That appears to be true in the Twin Cities metro area, where the going market cost for construction projects is about the same as the cost required under the state�s prevailing wage law.
But in outstate Minnesota, where wages and living costs are lower, prevailing wages do appear to drive up the cost of public projects, sometimes substantially.
A St. Cloud contractor doing a state project at St. Cloud State, told a television station that he is paying more than 30 percent more for the wages of his employees than he normally would.
The reason offered is that "prevailing wage" is set based on the mode of the distribution of wages; since most building projects happen in the Metro area, Metro wages are imposed across the state. This protects those contractors and labor unions from competition by other outstate Minnesota firms. A simple bill that would have made wages determined on something other than the mode, sponsored by Rep. Steve Gottwalt (R-St. Cloud), died in committee in the last legislative session.
In Koochiching County, up along the Canadian border, we found the state mandating pay rates for the most basic labor - they call it "common labor" - at $34.43/hour. This is a combination of wages and benefits.
If the employer doesn't have benefits totaling at least $10.61/hour, the state requires that the difference be made up in cash.
The bottom line is, the minimum pay ordered for entry level and unskilled labor in Koochiching county is $34.41/hour, if your tax dollars are being used to pay the bill.
That rate holds true (within a few pennies) all the way to the far arrowhead region along the northern border.
Points west drop as low as $26.70/hour.
In St. Cloud, the W Gohman Construction Company is building a parking ramp and public safety office on the campus of St. Cloud State University. It's a job paid for with your state tax dollars, so prevailing wages must be paid. The total job cost is about $7 million - half of it is labor costs.
Company president Michael Gohman tells us, if he could pay the market rate on this job, instead of the 'prevailing wage' he would save taxpayers between $350,000 & $700,000.
What's more, he took specific labor groups and compared the cost with and without the prevailing wage to show how prevailing wage inflates the cost of a project.
Gohman says those working under the state classification of "common laborers" are normally paid $25/hour in wages and benefits.
But on this taxpayer-funded project, the prevailing wage requires that they be paid $32.99. That's a 32% raise.
Cement Masons who are normally paid $32/hour have wages set by the state under the prevailing wage at $42.30. That's another 32% raise.
Gohman says he generally pays carpenters $30/hour. Under the prevailing wage laws he is required to pay them $32.99/hour. That's a more modest 8% raise.
Peer-reviewed research, as opposed to legislative auditor reports or working papers, finds the prevailing wage to be inefficient in the construction of public buildings. Kessler and Katz (2001) show that overall wages decline only slightly (2.3-3.9%) in construction from the repeal of prevailing wage laws, but that union wages declined much more than 6% in the short run and near 11% in the long run. Prevailing wage laws are a means of funding big labor, at taxpayer expense. And the DFL legislature has no intention of stopping the booty paid to its supporters.
(Same goes for living wage laws, says David Neumark.)