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Empire Center: Law drives up costs by baking union wages, benefits into public projects

New York State has had a prevailing wage law since 1894, and supporters say it’s needed to protect workers from being undercut and underpaid by contractors and government agencies. They also argue that prevailing wage laws help ensure that the size of public contracts – and the potential for a bidding race to the bottom to win them – don’t destabilize local and regional construction markets.

But critics say the laws hurt free-market competition, drive up costs on public projects and provide little real benefit to the economy other than protecting labor unions.

Conservative researcher E.J. McMahon and union advocate Richard Lipsitz Jr. recently sat down with The News to talk about the controversy over the state’s prevailing wage requirements.

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E.J. McMahon calculates that the state’s prevailing wage law drives up public construction costs in Buffalo by 20 percent.

The research director of the Empire Center for Public Policy, a fiscally conservative public policy organization, McMahon recently helped author an Empire Center report that called for reforming the state’s prevailing wage requirements.

A veteran analyst of New York State finances, McMahon has spent more than 30 years in the public and private sectors as an Albany analyst.

Q: What’s the controversy over prevailing wages?

A: New York, like about 30 other states, has a so-called prevailing wage law, which on the surface provides that all contractors and subcontractors on a publicly funded construction project owned by the government has to pay a “prevailing wage.”
But when you dig into it, the prevailing wage actually requires something that’s neither truly prevailing nor limited to the wage. In fact, the way this law has evolved in New York, it basically imposes union collective bargaining wages and benefits, and ultimately work rules and staffing patterns, on all public projects and drives up costs as a result.

Labor leader: Prevailing wage protects workers from ‘race to bottom’

Q: How so?

A: The union pay and benefits tend to be fairly high, but have been driven up, especially in recent years, by the cost of benefits. Union members have both defined benefit pension packages and retirement health insurance packages, which are funded through pension and health plans that now have serious financial problems and need extra money to attempt to dig out from the hole they find themselves in.

Q: The prevailing wages includes these extra factors?

A: It includes the benefits, as well as the wages. Union members in the Buffalo area make a little less than $25 an hour as their wage, which on the surface is not too surprising to hear, that a laborer in a union makes a good buck. But the total cost required by the prevailing wage law is just under $50 an hour because there is an amount that has to be paid for supplemental benefits for members of that union that almost equals the wage. And I’m not counting payroll taxes and unemployment insurance and union dues. I’m just talking about the so-called supplemental benefits. Those things are very costly, and they increasingly reflect the union cost of attempting to bail out their pension and welfare funds.

Q: So this is for all public-sector projects?

A: It’s for projects owned by a state or local government agency and paid for directly by the state or local government agency. So it would be a government building, a state university building, a school district building, a city building. If you’re doing any construction and you’re building a road or a bridge that’s owned by the government, you’re rehabbing a piece of City Hall, you’re building a new school, or the brand new UB Jacobs Medical School building, those are prevailing-wage jobs, and you have to use the union collectively bargained wage structure, which includes very expensive benefits.

Q: What about the private sector? Is that affected?

A: A purely private sector job, under current law, is not subject to the prevailing wage law. But there are moves afoot in Albany, and have been for years, to expand the definition of public works so that it takes in any private project that gets any kind of subsidy, even a small subsidy or incentive from the government.

Very few major new corporate or commercial projects are done, especially in upstate New York, that don’t have some sort of government incentive behind it, whether it’s an (Industrial Development Agency) strand of financing or other subsidy, a tax break, or anything like that that’s being used.

Q: Is this just a union-bashing or union-busting issue?

A: No. Basically, the point that we’re making in this report is that government should be seeking to build at the highest level of quality and efficiency available. We should be getting value for our dollars. After all, union members themselves are taxpayers. There is nothing implicitly anti-union in saying we need to get bang for our buck, that if we’re going to spend $300 million on a massive new building in a university medical campus, we ought to get $300 million of building.

The question then becomes, what will $300 million get you? Basically, the union side says you need to steer this work to us, you need to have a set-aside for us, because we are better or higher quality or a more desirable group of people or that we’re more productive. As a simple matter, if they were more economically productive, they would win the bid, with no problems. They’re not, so they don’t.

And you don’t have to repeal the constitutional amendment to do this. If you had a true “prevailing wage” law, most of the added costs that

I’m talking about would go away.

Q: One of the core benefits of a union is to protect workers, to make sure they’re getting decent wages. How would this change that?

A: In this case, what we’re doing is protecting the laborers’ pension fund, to make sure that it gets $7 an hour for every working laborer, so that maybe it will have some hope, some day, of actually having enough money to make good on its promises. That’s not the same thing.

Q: So you’re not opposed to the idea of prevailing wage, as long as it’s really prevailing?

A: I am opposed to prevailing. In the best of all worlds, we wouldn’t have it. It’s basically a form of protectionism for a certain class of contractors. There were no unions when this started.

Then the unions grew, and then it becomes a sort of protectionism for unions. Except the unions, even with this protectionism, have fewer and fewer members, and they’re less and less competitive.

So ideally, we’d have nothing, but you don’t have to have nothing. If you simply had a truly prevailing wage, based on survey data, and actually regulated and implemented it the way we say here, it would wipe out a vast majority of the added costs, because it would no longer be about imposing union collective bargaining agreements on the entire economy.

Labor leader: Prevailing wage protects workers from ‘race to bottom’

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