THE ADVERSE ECONOMIC IMPACT FROM REPEAL OF THE

PREVAILING WAGE LAW IN MISSOURI

 

A Study Funded by the Council for Promoting American Business

 

Conducted under the Auspices of:

 

The Department of Economics

University of Missouri – Kansas City

 

 

EXECUTIVE SUMMARY

 

 

Attempts to repeal the prevailing wage law in Missouri are based upon the claim that repeal will save dollars on total construction costs and will bolster state and local budgets.  However, this study has shown that repeal of the prevailing wage statute in Missouri would not save dollars on construction costs and would result in a negative economic impact on families in Missouri, taxpayers in Missouri, and the state and regional economies in Missouri.  This study has shown that the consequences of repeal in Missouri would include:

 

  • Lower wages for all construction workers in Missouri (direct impact of repeal in Missouri) and reduced incomes for other workers in industries located in Missouri (the indirect, or induced, impact of repeal).

 

  • Reduced health and pension benefits for construction workers in Missouri (and, as a result, probability of eventual increased costs to state and local communities).

 

  • Reduced sales tax revenues to the State of Missouri and regional economies in Missouri.

 

  • Reduced corporate income taxes for the State of Missouri.

 

  • Weakened system of construction apprenticeship training in Missouri.

 

  • Increased occupational injuries and their associated costs in Missouri.

 

  • Increased construction work done by out-of-state contractors in Missouri.

 

  • Lower productivity of the construction workforce.

 

Findings

 

 

Chapter III – Summary of Findings Based on Descriptive Statistics

 

  • Total new construction projects from 1993-2002 was 290,814; of which 34,427 were in non-prevailing wage states and 256,387 were in prevailing wage states.

 

  • Distribution of structure type (by percentage of projects) is essentially the same in prevailing wage states and non-prevailing wage states.

 

  • In non-prevailing wage states:  dollar value of new construction was $37,305,560,070; total square feet of new construction was 364,346,200; and mean cost per square foot of new construction across all structure types was $74.94

 

  • In prevailing wage states:  dollar value of new construction was $24l,524,373,519; total square feet of new construction was 3,089,590,300; and mean cost per square foot of new construction across all structure types was $78.17

 

  • Conclusion:  There is no statistically significant difference in mean square foot costs (difference is $3.23 per sq. Ft.) across all types of construction for the period 1993-2002 for prevailing wage states versus non-prevailing wage states.

 

 

Chapter III – Summary of Empirical Findings

 

  • Whether or not the construction occurs in a prevailing or a non-prevailing wage state, the cost differential between public and private construction projects is statistically significant (at the .01 level).

 

  • The presence of a prevailing wage statute did not result in any statistically significant difference in construction costs in the Great Plains States for the period 1993-2002.

 

 

Chapter IV – Economic Impact of Repeal in Missouri

 

  • Using an input-output approach to estimate the economic impact of repeal of Missouri’s prevailing wage law we calculate the direct and indirect losses to household income and to government revenues.

 

  • Losses are estimated for the state as a whole, and for four regions, two urban and two rural.

 

  • For the state as a whole, the major conclusions are:

 

  • The repeal of the prevailing wage law would cost the residents of Missouri and their families between $294.4 million and $356.0 million annually in lost income.

 

  • The repeal of the prevailing wage law would cost the state of Missouri between $5.7 million and $6.9 million in lost sales tax collections annually.

 

  • The repeal of the prevailing wage law would cost the State of Missouri between $17.7 and $21.4 million annually in lost income tax revenue.  This does not take into account the lost earnings tax that is imposed on incomes in certain parts of the state.

 

  • The total economic loss due to repeal of the prevailing wage law in Missouri in 2004 would be a loss of income and revenue between $317.8 million and $384.2 million annually.

 

 

For Urban Region #1 (St. Louis area), the conclusions are:

 

  • The repeal of the prevailing wage law would cost the residents of this region between $109.1 million and $131.8 million annually in lost income.

 

  • The repeal of the prevailing wage law would cost this region between $1.3 and $1.5 million in lost sales tax collections annually.

 

  • The repeal of the prevailing wage law would cost this region between $783,030 and $946,484 annually in lost earnings tax collections.

 

  • The total economic cost due to repeal of the prevailing wage law in this region in 2004 would be a loss between $111.l million and $134.3 million annually.

 

 

For Urban Region #2 (Kansas City area), the conclusions are:

 

  • The repeal of the prevailing wage law would cost the residents of this region between $65.1 million and $78.7 million annually in lost income.

 

  • The repeal of the prevailing wage law would cost this region between $709,957 and $858,265 in lost sales tax collections annually.

 

  • The repeal of the prevailing wage law would cost this region between $444,885 and $537,821 annually is lost earnings tax collections.

 

 

  • The total economic impact of repeal of the prevailing wage law in this region in 2004 would be an economic loss between $66.3 million and $80.1 million annually.

 

 

For Rural Region #1 (North Central Missouri), the conclusions are:

 

  • The repeal of the prevailing wage law would cost the residents of this region between $255,261 and $308,522 annually in lost income.

 

  • The repeal of the prevailing wage law would cost this region between $2,760 and $3,336 in lost sales tax collections annually.

 

  • The total economic loss due to repeal of the prevailing wage law in this region in 2004 would be between $258,021 and $311,858 annually.

 

 

 

For Rural Region #2 (South Central Missouri), major conclusions are:

 

  • The repeal of the prevailing wage law would cost the residents of this region between $2.1 million and $2.6 million annually in lost income.

 

  • The repeal of the prevailing wage law would cost this region between $17,373 and $20,997 in lost sales tax collections annually.

 

  • The total economic loss due to repeal of the prevailing wage law in this region in 2004 would be between $2.1 million and $2.6 million annually.

 

 

 

 

Chapter V – Other Impacts of Prevailing Wage Laws

 

 

  • Prevailing wage laws promote better compensation packages for workers:  By 1991-92, average total compensation for states that kept prevailing wages laws was 20.2% higher than for those states that repealed their laws after 1982-3.

 

  • Prevailing wage laws have helped to prevent erosion of compensation for construction workers:  There was no change in real average total compensation for states that kept prevailing laws; however, there was a 16.6 percent decline in real average total compensation in states that repealed their prevailing wage laws.

 

  • Real average total benefits per construction worker increased 32.4 percent from 1982-83 to 1991-92 in prevailing wage states; for states that repealed their prevailing wage law, real average total benefits decreased 53.5 percent over the same period.  Rel average total benefits per worker in prevailing wage states was 373.1 percent higher than in those states that repealed their PWL.

 

  • Real average pension benefits increased 5.0 percent from 1982-83 to 1991-92 in prevailing wage states; for states that repealed their prevailing wage law, real average pension benefits decreased 66.6 percent over the period.  Real average pension benefits per worker in prevailing wage states was 417.9 percent higher than in those states that repealed their PWL.

 

  • Real average health care benefits increased 49.4 percent between 1982-83 and 1991-92 in prevailing wage states; for states that repealed their prevailing wage law, real average health care benefits decreased 38.2 percent.  Real average health care benefits per worker in prevailing wage states was 345.0 percent higher than in those states that repealed their PWL.

 

  • Repeal of prevailing wage laws or the absence of prevailing wage laws encourages small, inexperienced construction firms to enter the sector.  These smaller and more inexperienced firms have poorer safety records than do large ones.

 

  • Employee turnover increases in states that do not have prevailing wage statutes.  Lower construction wages and benefits, lack of apprenticeship training, and other factors lead to a less skilled workforce that is more prone to injuries.

 

  • In 2001, Missouri had the lowest number of injuries per worker of all reporting states in our region; Missouri also has the strongest commitment to job training and apprenticeship programs.  Missouri reported the lowest number of severe injuries (e.g. workdays lost) of all reporting states in the region.  Repeal of the state’s prevailing wage laws would probably endanger Missouri’s superior safety record.

 

  • No correlation between average cost per mile and average wage rate in highway construction between 1980-1993.

 

  • Implausible that repeal of prevailing wage rate would reduce construction costs, given the productivity effects in construction.

 

  • Percentage of construction work done by in-state contractors in the Great Plains Region is significantly higher in prevailing wage states than non-prevailing wage states.

 

 

For prevailing wage states in the Great Plains Region, the value of construction work done by in-state contractors was 86.9, 91.0, and 91.7 percent, respectively, for the three Census reports 1982-1992.

 

For non-prevailing wage states in the Great Plains Region, the value of construction work done by in-state contractors was only 77.2, 79.1, and 84.5 percent respectively.

 

In Missouri, a prevailing wage state, the percentage of construction work done by in-state contractors was 80.6, 89.2, and 88.0 percent over the period 1982-1992; in Kansas, a non-prevailing wage state, the percentage of work done by in-state contractors was only 76.0, 74.6, and 82.7 percent over the period 1982-1992.

 

The presence of a prevailing wage statute is good for contractors in the State of Missouri, as well as its citizens and its taxpayers as jobs and incomes are kept in Missouri.