Productivity slides without prevailing wage laws

Larry L. Roberts
Larry L. Roberts

Recently, Kentucky Chamber of Commerce President and CEO Dave Adkisson penned a column with his Christmas wish list of low-road pro-business issues he expects the GOP to address in the 2017 General Assembly.

While I am not surprised by Adkisson’s support for repeal of Kentucky’s prevailing-wage law, I am surprised he relied upon a flawed draft report to substantiate repeal of something as important to the economy as prevailing wage.

The report he referenced was not adopted by the Kentucky legislature’s Program Review and Investigations Committee at its Dec. 16, 2014 meeting for a variety of reasons. The report was not an accounting of construction costs; it was a back-of-the-envelope hypothetical calculation about wages — and wages only.

There was no consideration of whether or not projects were completed on time. There was no consideration of cost overruns. There was no consideration of productivity of low-wage contractors and there was no consideration of downstream maintenance cost.

It was my testimony at the hearing that the report was incomplete, data were not verifiable and it contained unsupported conclusions. The report’s implication that prevailing wages raise construction costs was not directly addressed, measured or analyzed and it was for these reasons it was not adopted.

There is a substantial body of peer-reviewed evidence I have examined over the years on the effect of prevailing-wage regulations on government contract costs, and I believe the weight of the evidence is strongly on the side that there is no adverse impact.

Almost all the studies that have found otherwise use hypothetical models that fail to empirically address the question at hand. Moreover, the studies that have incorporated the full benefits of higher wages in public construction suggest that there are substantial quantifiable positive benefits of prevailing-wage laws.

The reason researchers don’t observe differences in costs associated with prevailing-wage laws is that higher wages in construction tend to reflect higher productivity. Prevailing-wage laws encourage the development of a high-skill, high-wage construction workforce.

Where the prevailing wage laws are applied, contractors compete for public-works projects based on having the most productive, best equipped and best managed workforce — not the cheapest, most exploitable workforce.

The hypothetical savings Adkisson projects is a mirage. The wages and benefits of blue-collar construction workers represent about 23 percent of the total cost of a construction project. Workers would have to work for free to realize the savings he suggests.

When you replace skilled workers with less skilled workers, research shows that any savings on wages are more than consumed by lower productivity and other costs. Proponents for repeal who claim that the government would save millions per year utilize oversimplified and fundamentally flawed methods of economic analysis which fail to take into account productivity, safety, community development, apprenticeship and training and other economic forces contributing to the real cost-effectiveness that prevailing wage laws offer.

I agree with Adkisson that the 2016 election is over. However, I feel confident a large number of Kentucky’s blue-collar construction workers who supported President-elect Donald Trump assisted in the significant shift in the Kentucky House. And those workers expect Trump and the Kentucky GOP to keep their promise that “policy decisions must pass a simple test: Does it create more jobs and better wages for Americans?”

Repeal of Kentucky’s prevailing wage law will break that promise.

Larry L. Roberts, former secretary of the Kentucky Labor Cabinet 2014-16, is a labor-management consultant.

At issue: Commentary by Dave Adkisson of the Kentucky Chamber of Commerce, “Ky. political change ripe for pro-growth laws