Wednesday, March 18, 2009

More bang for your stimulus buck 

Two Republican legislators are proposing a suspension of a public works provision that keeps wages on public projects very high, reducing the amount of jobs that could be created:
Today, Sen. Chris Gerlach, R-Apple Valley, and Rep. Steve Gottwalt, R-St. Cloud, have joined with commercial builders to introduce legislation to call �time out� on prevailing wage mandates during budget strife. The bill would suspend prevailing wage for the calendar year following a November budget forecast of a 1-percent deficit or greater.

...Gottwalt said this means the state either pays more for a project, gets less construction for its money, or has fewer workers on the job. Being more efficient will create better outcomes for everyone, he said.

�We can�t cut other vital government services, lay off state employees, and raise taxes while deliberately overpaying to build or renovate buildings,� Gottwalt said. �With the state bonding bills averaging over a $1 billion per biennium, we could save a minimum of $70 million. That�s money that can build more projects and create more jobs.�

Paul Burke, owner of Mike�s Clean Sweep Services, agreed.

�We do the heavy cleaning to prepare the building for occupancy,� he said. �Our company pays good wages: nearly always more than my competitors. We need to do so to keep the best workers. But prevailing wage rates are 40 percent higher than my rates. I have to pass that on through the contract, and that means the project is more expensive, or they use less of my services and I have to hire fewer people.�

�At a time of budget cuts, it just doesn�t make any sense to have a super-minimum wage for state funded construction projects,� Gerlach said. �Our prevailing wage system is deliberately biased to ensure that high wages are paid. How can we deliberately overpay to construct buildings, while laying off the people that were supposed to work in them? The least we can do is suspend the program when we know we have to cut spending or raise taxes.�
Among other studies cited, Gerlach and Gottwalt offer a 2005 Minnesota Taxpayers Association study that shows that payment of "prevailing wages" as required by Davis-Bacon legislation (such as that proposed in the federal stimulus package) adds 7-10% to project costs. This enriches insiders that work on public projects, many of them unionized, at the expense of those who would work for less and permit those funds to hire more workers.

It would make some sense if the wages that were required on public projects were those common to a region -- you wouldn't want people getting public money who were paying low wages when the purpose of the project is to stabilize family incomes. But as Investors Business Daily pointed out last week,

At the Department of Labor, two agencies gather information related to wages and labor: the Wage and Labor Division (WHD) as well as the Bureau of Labor Statistics (BLS). It is the WHD that has the job of calculating the prevailing wage under the Davis-Bacon Act.

A 2008 study by Suffolk University and the Beacon Hill Institute found that WHD prevailing wage estimates were 22% higher than the BLS average reported wages paid in various cities. The reason is madness in the WHD's method.

According to the Suffolk study, the structure of the WHD methodology results in lower participation from small and midsize firms, provides an opportunity for unions to dominate the process of reporting wages, and lets as few as 12.5% of survey respondents set wages for the entire universe of workers.

In contrast, the BLS uses the Occupational Employment Survey, which collects wage data from more than 1.2 million establishments. Thus BLS wage estimates rely on a much larger sample that better represents wages that prevail in the labor market.

In Minnesota it's worse insofar as the sampling is for a modal wage (according to the MTA study), so one unionized large firm can force a high wage on many smaller firms (which may or may not be unionized.) The gap is probably not 22% in Minnesota, given the MTA estimate of 7-10%, but it is sufficiently high to cause one to wonder how these laws actually help all workers.

I hope Gerlach and Gottwalt go beyond this law and seek a law change that requires payment of median wages rather than the modal standard. It would reduce costs, allow more workers to be hired, and still assure that low wages are not paid on public projects. It's what most states do; time for Minnesota to catch up.

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