Implications of Prevailing Wage Zone Pay and the Contract Threshold in

Montana

Kevin Duncan, Ph.D.Colorado State University –

Pueblo

Local Government Interim Committee,Montana State Legislature

November 18, 2021

Presentation Topics 1. Costs of prevailing wage laws:

• Impact on construction costs.• September 23 meeting:

• Zone pay and the coverage threshold.

2. Benefits of prevailing wage laws:• Items 1e – 1h, Joint Resolution for Interim Committee:• Economic impact (threshold).• Apprenticeship training and injury rates.• Construction worker earnings.

Labor Costs in Construction• U. S. Census Bureau construction survey:

• Every 5 years, several 100,000 contractors.

• Commercial, heavy & highway and new, demo, etc.

• Blue-collar construction worker wages and benefits:

• 23% of total contractor costs of construction in U.S.

• 24% in Montana.

• September’s meeting: A “cement culvert system” in Baker• North Dakota cost = $500,000 (no prevailing wage).• Montana cost = $800,000 (with prevailing wage).• A 60% cost increase with 24% labor costs?

Prevailing Wages, Construction Costs, and Peer-Reviewed Research

• Statistical analysis of contractor bid costs. • Compare projects with and without prevailing wages.• Considering project complexity and size, etc.• An apples to apples comparison.

• 92% of school construction studies: No PW cost impact.

• 75% of highway studies: No PW cost impact.

• Why?• Labor costs are a low percent of total costs.• Small labor productivity and utilization changes offset

prevailing wages.

Changes to the Coverage Threshold and Construction Costs.

• Nevada school construction (2009-2018):• Examine the cost effect of prevailing wage by:• Comparing projects above and below the coverage threshold.• Before 2015, threshold = $100,000, after 2015 = $250,000.

• Costs of projects above and below the thresholds?• Due to differences in size and complexity.• No cost difference due to prevailing wages.

Prevailing Wage Changes and Construction Costs.

• Nevada school construction:• 10% PW reduction for school construction in 2015.• Different effects on union and nonunion contractors.

• Union contractors pursued other projects.• 25% reduction in bid competition after 2015.• 20% increase in low bids after 2015.

• Policy changes in 2015:•Threshold was increased to reduce construction costs.•10% reduction in PW to reduce costs.

Prevailing Wage Changes and Construction Costs.

• Colorado highway resurfacing (2000-2011):• Compares federal and state-funded work.

• No cost difference between federal and state projects.

• 2002 federal prevailing wage determination: • Prevailing wages change from union to average rates.• Compensation for 83% of job classifications fell 18%.

• No cost difference between federal and state projects.

Benefits of Prevailing Wages:Economic Impact.

• By protecting local wages, PW protects work for local contractors.

• More of the jobs, income, and spending remain in the region.

• Stimulates local retail and services industries.

• A benefit to industries that are unrelated to construction.

• Research examples:

• School construction in Minneapolis-St. Paul

• With PW, 10% more of project value by local contractors.

• 74% with PW v. 64% without PW.

Economic Impact of Prevailing Wages.

• Library construction in Santa Clara County, CA.

• With PW, 39% of contractors were county residents.

• Without PW, 23% of contractors were county residents.

• Iowa highway construction with Davis-Bacon PW

• Out of state contractors 8% less like to win a bid.

Economic Impact of an Increased Coverage Threshold

• Between 2007 and 2012:

• Increase in work by out-of-state contractors across the nation.

• Three states raised their coverage thresholds:

• Indiana by $100,000, Oregon by $25,000:

• Both had above average increases in work by out-of-state

builders.

• Ohio by $10,405, no above average increase in work by out-of-

state contractors.

Prevailing Wages, Apprenticeship Training, and Income.

• Prevailing wages create an incentive to hire apprentices:

• Apprentices earn a fraction of the prevailing wage.

• About 25% of construction in Montana is publicly funded.

• Prevailing wage is a driver of formal training in Montana.

• 79% of apprentices in Montana are in construction.

• Apprentice career earnings $240,000 higher.** Mathematica Policy Research. 2012. “An Effectiveness Assessment and Cost-Benefit Analysis of Registered Apprentices in 10 States.” Accessed at: https://www.mathematica.org/publications/an-effectiveness-assessment-and-costbenefit-analysis-of-registered-apprenticeship-in-10-states

Prevailing Wages, Apprenticeships, Training, and Injury Rates.

• Other research:

• Apprentice enrollments are 6% to 8% higher in states with

prevailing wages.

• Injury rates are 7% to 10% lower in states with prevailing wages.

Prevailing Wages, Payroll Taxes, and Construction Worker Poverty

• 10 states repealed PW from 1979 and 1995:

• Average income of ALL construction workers decreased by 4%.

• Legally required benefit payments decreased by 10%.

• Includes SS#, workers comp, unemployment ins.

• Voluntary benefits, paid by the employer, decreased by 16%.

• Includes retirement and health insurance benefits.

• If wages decrease, dependence on public assistance increases.** Manzo and Duncan. 2018. “An Examination of Minnesota’s Prevailing Wage Law.” Accessed at: https://midwestepi.files.wordpress.com/2018/07/mepi-csu-examination-of-minnesotas-prevailing-wage-law-final.pdf

Research Implications:• Eliminating zone pay and increasing the threshold:

• Unlikely to reduce construction costs.• May have unintended consequences (bid competition &

costs).

• A loss of benefits:• Less work for local contractors.• Fewer apprentices.• More injuries.• Reduced construction worker incomes.

• Increased poverty and dependence on public assistance.