WV Center on Budget and Policy > Blog > Budget > Apples to Oranges: Comparing Prevailing Wage Rates

Apples to Oranges: Comparing Prevailing Wage Rates

Earlier, I showed how it’s nearly impossible for the prevailing wage to add 25% to the cost of public construction projects, like opponents to the law claim, even if you assume that the prevailing wage is nearly 50% higher than average wages in the construction sector. But let’s take a closer look at that 50% claim.

Opponents to West Virginia’s prevailing wage law claim that the way the prevailing wage is calculated is flawed, and biased towards higher wages. This claim is supported by a study from the conservative Public Policy Foundation of West Virginia, which found that West Virginia’s calculation for the law results in prevailing wages that are 49% higher than the average market wage. However, the Public Policy Foundation’s method of comparing wages was itself flawed.

The study compared the prevailing wage rates set by the West Virginia Division of Labor with the average wages for construction occupations from the Bureau of Labor Statistics Occupational Employment Statistics (OES). And prevailing wages are an average of 49% higher than the averages for construction occupations from the OES.

But while using the OES data allows for comparisons of occupations, the OES is measuring a different portion of the construction industry than what receives the prevailing wage. The OES data includes workers in the residential construction sector, which typically employs workers with lower skill levels and less experience than those who work on large projects typically funded by the state. Prisons, schools, and bridges are larger, more complex projects than what is found in the residential construction sector, and require more skilled and experienced workers. As a result, the workers are higher paid.

In fact, when you compare wages for residential and nonresidential construction workers, which you can do using data from the Quarterly Census of Employment Wages (QCEW), nonresidential workers do make far more. The gap between the average wages from the OES and the prevailing wage rates set by the Division of Labor reflects the gap between residential and nonresidential construction.

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And it’s not just West Virginia’s prevailing wage law that is creating the wage gap between residential and nonresidential construction. Virginia, with no prevailing wage law, has a similar wage gap. And while Virginia’s gap is less pronounced than West Virginia’s, that is due to its residential wages being higher than West Virginia’s, rather than West Virginia’s nonresidential wages being excessively inflated by the prevailing wage.

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Using OES data to compare prevailing wage rates overstates the cost of prevailing wage. While the point of the prevailing wage law is to ensure that wages paid to workers on state construction projects don’t result in a race to the bottom, they probably wouldn’t fall by 50% without the prevailing wage. And even if they did, the state wouldn’t save 25% on the cost of public projects like prevailing wage opponents claim. 

Does that mean that the wages from the QCEW should be used to set prevailing wage rates? Not really. The wages in the QCEW are the average of all workers at a particular establishment, which can include multiple occupations and jobs. So while the QCEW shows that workers at a roofing establishment earn an average weekly wage of $928 in West Virginia, those workers aren’t all necessarily roofers. That wage figure includes managers, receptionists, and other non-roofing occupations that can exist in a roofing establishment.

In addition, the average weekly wage in the QCEW is calculated by dividing the annual wage by 52 (weeks). The construction industry is very seasonal, with most workers working less than 52 weeks in a year (according to the Current Population Survey, construction workers in West Virginia work an average of 47 weeks per year). This makes their average weekly wages lower in the QCEW, since it includes several weeks of not working. So a construction worker earning $25/hour, but only working 47 weeks/year would show up in the QCEW as earning $904/week or the equivalent of $22.60/hour. And since the prevailing wage is set hourly, you really can’t compare the two.

And if the OES data isn’t an appropriate comparison, and the QCEW isn’t an appropriate comparison, what can you do? You can take a survey, which is exactly how West Virginia’s prevailing wage rates are set.

If West Virginia’s prevailing wage rates really were that far out of line with the market averages, then our construction costs should be higher than in other states, particularly those without a prevailing wage law. But, that is not the case. This study, prepared for a county government in Maryland, looked at the median cost of school construction per square foot for six mid-Atlantic states, both with and without prevailing wage laws. And it found that West Virginia had the 2nd lowest construction costs of the six states. Our per square foot construction costs were only 0.7% higher than North Carolina’s, the state with the lowest costs. Our construction costs were 20% lower than in neighboring Maryland, which has only partial prevailing wage coverage, and 7% lower than neighboring Virginia, which has been cited as a model  by opponents of West Virginia’s law.

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While the prevailing wage does result in higher wages, those higher wages result in more experienced workers with greater productivity. And that productivity offsets the higher wage. That’s why, as the study found, while the prevailing wage created a wage premium for construction workers, “there is no measurable or statistically significant increase in construction costs associated with prevailing wage regulations.” The report also found that it did appear that prevailing wage laws encouraged the use of local contractors. 

So, once again, opponents of West Virginia’s prevailing wage law have overstated their case, and their math doesn’t add up. In reality, the impact of West Virginia’s prevailing wage law is consistent with its original intent: to promote a path of high-wage economic development by keeping our tax dollars in West Virginia.

4 Responses to “Apples to Oranges: Comparing Prevailing Wage Rates”

  1. Michae Folk says:

    Where does your statement regarding prevailing wage workers being more experienced originate?

  2. Ted Boettner Ted Boettner says:

    Delegate Folk,
    Wages in almost all industries tend to rise with experience, education, skill, specialization and most importantly demand. Public construction projects that fall under PWL like schools require much more highly skilled workers than those that build residential houses. This is precisely why they are paid more. Competition for those jobs is usually tight and would dictate that the most experienced and productive workers would be chosen for those projects. Unlike many of the residential housing construction workers, those that work on large private and public projects usually go through an apprenticeship program and then work their why up.

    Sean may have other things to add.

    Thanks for reading and let us know if you need any additional information.

    Ted

  3. Jeremiah Johnson says:

    While you point out that opponents of prevailing wage overstate their case case on cost savings, in response to Delegate Folk, it is important not to generalize and advance the an equally overstated position that “the wage” translates into more experienced and productive workers and better quality construction.

    I have been employed by a public utility for over 10 years in this state and have been involved in millions of dollars of public works construction that we either owned or regulated in some form or fashion. During that time I have had the privilege of working with some outstanding construction workers and also some pretty sorry ones. In either instance, those workers were compensated a prevailing wage. To advocate for the “wage” representing that it insures the public will receive a quality product when the work is done simply is not the case.

    While it is hard to translate my professional experiences into statistics, here are some personal experiences regarding less then stellar construction workers to consider. On one project, a certified blaster was kicked off the job because he was caught huffing paint while on the clock. On another project, a work crew commuted over 2 hours to our job site without instruction on their job duties or tools on the truck to complete the work when they arrived. In other instances, we have furnished proper construction materials to workers when they started work shifts without materials on hand to keep the crew productive. We have also made temporary arrangements for equipment when work crews have arrived in town without equipment. In another instance, workers were sent to purchase topsoil by the bag from Big Lots because they knew of no other source for this common construction material. In a lot of instances, it is found that workers can not read construction plan sheets. It is not uncommon to have workers ask our forces how to construct the pipeline or other public work. We have had workers fall asleep during construction progress meetings. We have had construction workers boast that they are making three times the hourly wage rate of our internal operators. I have seen workers lay pipe backwards, not on grade, without proper bedding, etc.

    These experiences indicate that paying these workers a “prevailing wage”, does not assure us or our rate payers that this “wage” will provide a guarantee that we will receive a top notch professional, highly productive work force or a quality product. Just as not paying a prevailing wage will not preclude a private construction project from receiving quality labor or a quality product. I am happy to report in most instances we do end up with a quality construction project. However, that success is attributable to not only labor, but also sound engineering design and comprehensive construction management including quality control/quality assurance programs.

    So am I against a prevailing wage? No, I am not. However, if we are going to keep a prevailing wage, we must understand from time to time reform is necessary.

    What reforms would I like to see? First, I would advocate that safeguards must be in place to insure that the methodology used to set the wage is statistically valid and not subject to sampling bias or political influence. Preferably, this methodology would be insulated by utilizing an academic economic research center to generate the numbers that can be peer reviewed by a review panel in an open transparent process.

    Second, we must consider a minimum construction value at which prevailing wage should apply. Small value public contracts by their nature are burdensome to administer. Prevailing wages and certified payrolls do not help this. In addition it is often difficult to get bidders on small projects because of profit margin and small businesses that are well suited for these types of project often refuse to bid, because of the prevailing wage requirements. Right or wrong, I personally have had small business owners tell me they will not pay their workforce 2-3 times their customary wage, only to reduce it back after the project is over.

    Therefore on these projects in many instances, we don’t get significant competition. In addition, my experience is public entities have a lot of small construction projects that they either mothball or delay until their own internal forces can do the work in lieu of contracting the work and paying prevailing wage.

    Third, with the need for private investment in this state, we must have a serious discussion on any statutes that stipulate private funded public works improvements must pay the prevailing wage. For instance, for economic development projects, water and sewer infrastructure extensions are often required. In most instances, the developer is required to fund these extensions with private money. Many utilities prefer to maintain control of these extensions by hiring contractors to complete the construction. However, if a private project pays the public utility for the mainline extension construction and the work is contracted, the construction is subject to prevailing wage labor. Even though the project is 100% privately funded.

  4. Sean O'Leary Sean O'Leary says:

    Jeremiah,

    Thank you for your comment. I do have to say that it is not a generalization or an overstatement to say the prevailing wage laws result in more experienced and productive workers.

    States with prevailing wage laws have more investment in apprenticeships, and their workers are also more educated. This leads to a more experienced workforce with fewer injuries and greater productivity. Value added per worker is on average 14% higher in states with prevailing wage laws than in state’s without. These facts have all been proven statistically, and are a direct result of the higher investment in human capital that is created through the prevailing wage.

    While you have some personal experiences that you feel contradict those numbers, your experiences don’t disprove them.

    Unfortunately, while your ideas for reform are good, leadership in the Senate is moving forward with a full repeal of the state’s prevailing wage law, in spite of the evidence.

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