Utah economist debunks high-costs ascribed to Davis-Bacon

A nationally-respected economist and researcher of state and federal prevailing wage laws shared some of his findings with Oregon lawmakers, contractors and union officials Oct. 16 at the Hilton Hotel in downtown Portland.

The program was co-sponsored by the Construction Alliance, the Oregon Building Trades Council and PacWest Communications. The alliance is comprised of labor/management groups from the electrical, sheet metal and plumbing and pipefitting industries.

University of Utah professor and economist Peter Philips has been studying the impacts of prevailing wage laws on the cost of construction for more than a decade. His findings have continually debunked claims by non-union and anti-union contractors and trade groups that the law - known as the Davis-Bacon Act - drives up construction costs on schools, highways and other taxpayer-funded projects because it requires them to pay higher wages and benefits.

Federal prevailing wage laws were enacted in 1931. The act requires that workers on government-sponsored construction projects be paid at a level that is at least equal to the level "prevailing" in the area where the construction takes place. Included in these specifications are worker benefits such as health insurance and pension contributions. The intent of the law is generally to protect the local wage rates in the construction industry. Oftentimes, the prevailing wage is union scale, which non-union contractors deplore.

The Davis Bacon Act was named after its Republican sponsors - U.S. Representative Edward Bacon from New York and U.S. Senator James Davis from Pennsylvania. Their bill was signed by Republican President Herbert Hoover.

The so-called "little" Davis-Bacon laws were enacted at the state level to cover local government projects. The first state to adopt a prevailing wage law was Kansas in 1891. Oregon's little Davis-Bacon Act was signed into law by Republican Governor Mark Hatfield in 1959.

Numerous "studies" have been conducted over the years by prevailing wage critics in attempts to dismantle the law. Between 1979 and 1988, nine states wiped such laws off their books based on the thinking they could get "more bang for their buck," particularly when it came to building schools.

In 1994, merit shop contractors in Oregon floated a ballot measure to repeal the state's "little" Davis-Bacon Act, but voters had none of it, voting it down by a 60-40 percent margin.

Paul Phillips (no relation to Peter), president of PacWest, said Oregon's little Davis-Bacon Act has been under attack in the Legislature ever since it was upheld by voters.

"This battle is anything but over," he said. "We expect to fight it again next year when the Legislature is in session. You win these types of battles with fact-based arguments, and this is ammunition that will blow the other folks out of the water."

Listening to Professor Philips' findings were several Oregon lawmakers, including Republicans Bill Witt, Charles Starr and Vic Backlund, and Democrats Kate Brown, Terry Beyer and Jackie Dingfelder.

Professor Philips' research - which has compared states with prevailing wage laws against states without - has found no significant differences in labor costs between the states.

A 1998 study evaluated 15 Great Plains states to examine how the repeal of the Kansas prevailing wage law in 1987 had impacted labor and construction costs. While cost savings to taxpayers in Kansas did not pan out, the loss in income by craftworkers did. Kansas craftworkers' wage income fell 11 percent from 1987 to 1991.

Following repeal, apprenticeship training in Kansas fell 38 percent, minority apprenticeship training fell 54 percent, and total employer contributions to pension and health funds declined 17 percent - from an average of $20 million per year to $16.6 million. Worker injuries increased 19 percent, with serious injuries rising 21.5 percent.

Philips said savings to the state did not pan out because they were based on hypothetical calculations.

"There are too many assumptions put on the anti-prevailing wage arguments," he said. "They're assuming that if you cut wages by 50 percent nothing else changes ... to workers' productivity, to training, to equipment, to safety. These are all speculations."

Furthermore, Philips said, lawmakers were duped into believing labor makes up 50 percent of total construction costs. "Labor costs are nowhere near that high," he said. "Labor costs are typically only 25 to 30 percent of total building construction costs and even less on street and highway construction."

The findings of the Kansas study were consistent with another study by Philips that compared five prevailing wage states (New Mexico, Texas, Oklahoma, Wyoming and Nevada) with four "no law" states (Arizona, Utah, Idaho and Colorado).

The research found that the cost of building elementary, middle and high schools in prevailing wage states was between $6 to $11 less per square foot than in "no law" states. Building warehouses cost $35 per square foot less in the states with prevailing wage laws while office building construction was $2 per square foot higher.

The study of nine states also showed a major decrease in minority enrollment for apprenticeship programs in no law states - from 20 percent to 12.5 percent.

After Utah repealed its little Davis-Bacon law in 1981, cost overruns on state financed roads tripled over the next decade. Philips' 1995 study shows that construction workers earnings dropped from 125 percent of the average non-agricultural wage to 103 percent of the average wage in 1993. As a result of this wage decline, state and local governments lost substantial income and sales tax revenues.

Philips' most recent study focused on Ohio, Michigan and Kentucky - three adjoining states that have had changes in their prevailing wage laws. The tri-state research project compared independently published F.W. Dodge cost data for 391 new school construction projects between 1991 and September 2000.

Kentucky enacted a prevailing wage law for public schools starting in July 1996. It had no prevailing wage coverage prior to that. Ohio exempted public school construction from prevailing wage coverage after June 1997, and Michigan suspended its prevailing wage law at the end of 1994 due to a court order. That ruling was overturned and reinstated in July of 1997.

In his report, Philips said the dynamic changes in those three states made for an ideal real world test-case study on the impact of prevailing wage laws. The study went beyond investigating the "alleged" costs - it also looked at project size, project start time, and even if the project had a gym/pool as part of the bid.His findings:

* There was no statistical significant cost difference between schools built with prevailing wages and those built without.

* School construction projects started in the spring of the year were 10.9 percent less expensive than school projects started in the fall of the year.

* There is little, if any, savings in building a bigger building on a square-foot installed basis.

What Happens To Training?

One interesting finding, Philips said, was the reduction of training programs in states without prevailing wage laws.

In organized construction, all union contractors must fund training, but in a cut-throat bidding environment, there is an incentive to avoid long-term costs to get a contract. Therefore, a worker who wants training must pay out-of-pocket, whereas in the union sector, workers do not pay for training.

Thus, in the open-shop sector there are two incentives not to train. One being on the part of the employer who could end up absorbing the cost of training an apprentice that later goes to work for a competitor; and second, workers are less likely to seek training if they have to pay for it themselves.

For example, a study of apprenticeship training in Northeastern Ohio revealed that 574 people registered for union construction apprenticeships in 1995. Additionally, of those who entered the classes of 1989, 1990 and 1991, 48 percent of the union apprentices graduated by 1995 with another 23 percent still actively enrolled in classes and 29 percent canceling, while among non-union apprentices, only 29 percent had completed classes, 5 percent were still actively enrolled and 61 percent had canceled.

Imbedded in union contractors' bids are the long-term costs that are associated with collective bargaining agreements outlining pay, fringe benefits and training. They are committed to "teach the new generation, to care for the last generation, and keep the present generation healthy and working," Philips said.

Unions provide training with the incentive that highly-skilled workers are the "product" that they have to sell to remain competitive, he said.

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