A prevailing wage law protects local construction standards and ensures that workers earn living wages that allow them to support families. By creating a level playing field in public construction and preventing the government from undercutting privately-negotiated local wages, prevailing wage laws support local contractors and raise their chances of being awarded a bid over an out-of-area or foreign company. In addition, the preponderance of the evidence finds that prevailing wage laws have no statistical impact on the total cost of construction.
However, concerted efforts have been made in Illinois and at least ten other states over the past three years to weaken or repeal prevailing wage standards. These efforts are typically based on the premise that prevailing wage laws “inflate” construction worker wages above their market rate, which is a testable claim.
The evidence clearly reveals that prevailing wage is the local market rate in Illinois and many other states. By preventing government from using its massive purchasing power to undercut local standards, prevailing wage laws ensure that workers employed on taxpayer-funded projects are paid a competitive rate determined by private actors.
Prevailing Wage Laws (PWLs) At-A-Glance
- Prevailing wages are market wages set by local competitive practices and are based on what local contractors actually pay workers on public works and similar jobs
- PWLs do not lead to increases in the cost of public construction projects
- Prevailing wage states have higher productivity per construction employee: productivity is 14 percent to 33 percent higher in states with PWLs
- Construction firms in PWL states spend over $1,200 more per employee on legally required benefits and over $2,900 more on fringe benefits
- If states with PWLs all repealed their laws, the national economy would lose 400,000 jobs and hundreds of thousands of construction workers would be forced to rely on government assistance programs
- Fewer on-the-job injuries and fatalities occur when a workforce is trained and educated, which is more likely in PW states that encourage investment in apprenticeship programs
Prevailing Wage is Good for Tax Payers
An emerging academic consensus shows that prevailing wage laws have no statistically significant impact on project costs while delivering vital benefits across all sectors of the economy. A higher prevailing wage also has no discernible impact on job turnover, new hires, or layoffs and quits for men in the road construction industry in Illinois.
How Prevailing Wage Laws Help Veterans
Prevailing wage standards make construction employment more attractive for veterans and improve economic outcomes for veterans. Strong or average prevailing wage laws:
- Increase veteran employment in blue-collar construction occupations by up to 1.9 percentage points;
- Increase the annual incomes of veteran blue-collar construction workers by 7.0 to 10.7 percent
- Improve employer-provided health coverage for veterans in construction by 11.2 to 14.6 percent;
- Reduce veteran poverty by 23.7 to 31.4 percent for those working in construction;
- Support an estimated 7,767 veteran-owned construction firms.
The economic outcomes of veterans would be significantly altered if all states with strong or average prevailing wage legislation weakened or repealed their laws. If state prevailing wage laws were repealed:
- There would be a 65,000-job drop in the number of veterans employed as construction workers;
- There would be a $3.1 billion decline in veteran incomes in construction occupations;
- The number of veterans without health insurance would increase by 24,000 uninsured;
- an approximately 5,000 employed veterans would now earn incomes below the official poverty line.
Replacing the Minimum Wage with a Living Wage
The minimum wage is intended to ensure that workers can maintain a minimum standard of living that protects their health and well-being. In Illinois, Indiana, and Iowa, the minimum wage fails to accomplish this goal. Current minimum wage rates are especially inadequate when compared to the hourly wage needed for a full time worker to afford a modest one-bedroom apartment.
While there has been much public debate on the merits of raising the minimum wage, we believe there is a substantial need for a minimum wage of at least $10.00 an hour based on the cost of living in Illinois, Minnesota, Wisconsin, Indiana, and Iowa. To make housing more affordable to low-income individuals, states should raise the minimum wage.
In Illinois, the county-level average wage needed to afford a modest one-bedroom apartment is $10.79 per hour for a full-time worker. After adjusting for population size, the actual average wage needed to afford a modest one-bedroom apartment is $16.36 per hour for a full-time worker.
In Indiana, the hourly wage needs to be $10.00 an hour or more in 58 counties (63.0 percent). For 20 counties (21.7 percent), the wage needed to afford a modest one-bedroom apartment is $12.00 an hour or more. Many of the highest-cost counties in Indiana are part of the Chicago metropolitan area. For example, a full-time worker in Lake County, Indiana must earn $13.60 an hour to avoid being rent-burdened in a one-bedroom apartment.
In Iowa, the hourly wage needs to be $10.00 an hour or more in 29 counties in Iowa (29.3 percent). For 10 counties (10.1 percent), the wage needed to afford a modest one-bedroom apartment is $12.00 an hour or more.
Increasing the minimum wage would reduce inequality, increase consumption by low-income households, and possibly stimulate the regional economy. To make housing more affordable to low income individuals, states should raise the minimum wage.
Analysis from the Illinois Economic Policy Institute. For further reading:
Prevailing Wage Laws and “Right-to-Work” Laws: Fact Sheet
A Weakened State: The Economic and Social Impacts of Repeal of the Prevailing Wage Law in Illinois
The Impact of Prevailing Wage Laws on Military Veterans: An Economic and Labor Market Analysis
A Minimum-Wage Worker Cannot Afford a Modest Apartment: Evidence from Illinois, Minnesota, Wisconsin, Indiana, and Iowa
Minimum Wage, Maximum Benefit: How a $10 Wage Floor Impacts All Workers and the Economy