The impact of repealing prevailing wage laws on military veterans

Introduction

Prevailing wage laws have been the focus of public policy debate in the United States for some time now. These laws require that construction works on public projects be paid the wages and benefits that are determined by the U.S. Department of Labor to be prevailing for similar work in or near the locality in which the construction project is to be performed. The prevailing wage concept arises from the concern that unbridled competition among employers to pay low wages in construction would lead to a less-skilled and less-productive workforce and to shoddy construction practices and unsafe public buildings and infrastructure.

While these laws have enjoyed bipartisan support as the best value for taxpayers and the economy for generations, at least a dozen states have considered weakening or eliminating these standards in the recent past.

Attempts to repeal the prevailing wage laws in a number of states are based upon the claim that repeal will save dollars on total construction costs and will bolster state and local budgets. However, there seems to be a disconnect between what the critics of these laws are saying and the reality on the ground. For example, take the case of military veterans. Missing entirely from the debate is the fact that military veterans pursue jobs in the construction trades at substantially higher rates than non-veterans. An estimated half a million veterans are currently employed as construction workers. And this means that any effort to weaken or eliminate these laws would have an outsized impact on veterans.

This should not be surprising. The military has increasingly focused on promoting skilled apprenticeships to help veterans transitioning to the civilian world, and now provides over 20% of the registered apprenticeships in the country. And the teambuilding, problem solving, and project management skills honed on the battlefield translate well to occupations in the construction industry.

Two recent studies, Manzo et al (2016a, 2016b), have analyzed the impact of prevailing wage laws on military veterans. They have found that the economic conditions of veterans would be profoundly affected if states with strong-to-moderate prevailing wage laws were to weaken their standards. The authors showed that prevailing wage laws are vital to all construction worker wages, but are especially crucial for veterans whose post-military service work skews blue collar at a higher rate than other demographics. These two studies were commissioned by the VoteVets.org (2016a) and Midwest Economic Policy Institute (2016b).

Why is this an important issue?

Strong prevailing wage laws, along with programs such as the union-sponsored Helmets to Hardhats and the military’s new emphasis on the United States Military Apprenticeship Program (USMAP) have made construction employment more and more attractive to military veterans. They are about four times more likely to be enrolled in a registered apprenticeship program than civilian workers.

Nationally, veterans account for 5.8% of the overall workforce but comprise 6.9% of all blue-collar construction workers. In Wisconsin, veterans make up an even larger share of the construction workforce. Approximately, 8.3% of all blue-collar construction workers in Wisconsin are military veterans.

So, studying the impact of prevailing wage laws on military veterans in Wisconsin is important for at least three reasons (Duncan and Lantsberg, 2015). First, wages paid to veteran workers are ultimately spent in local communities — rippling out to every segment of the economy. This directly affects job creation, overall economic output and the tax revenue states have available to support other public services.

Second, strong prevailing wage laws are designed to reflect local market conditions, and changes to these standards in Wisconsin will affect the amount of its construction dollars that are invested within Wisconsin’s economy or exported to other states with lower standards.

And third, prevailing wage triggers industry responses that affect work site efficiency and materials usage, which is directly connected with the question of taxpayer value and overall project cost.

Manzo et al studies

Manzo et al (2016a, 2016b) studies came up with some strong conclusions. They suggested that prevailing wage standards make construction employment more attractive for veterans as it improves their economic conditions. In particular, they

Increase veteran employment in blue-collar construction occupations;

Increase the annual incomes of veteran blue-collar construction workers by 7.0 to 10.7 percent;

Increase 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; and

Support 7,767 veteran-owned construction firms that would go out of business if the laws were repealed.

The Manzo et al studies argued that the economic conditions of veterans would be adversely affected if all states with strong or average prevailing wage legislation weakened or repealed their laws. In particular,

There would be a 65,000-job drop in the number of veterans employed as construction workers nationally;

The job separations and earnings losses would result in a $3.1 billion decline in veteran incomes in construction;

The number of veterans without health insurance would increase by 24,000 uninsured; and

Approximately 5,000 employed veterans would now earn incomes below the official poverty line.

Will the repeal of prevailing wage laws reduce cost?

More than 75 percent of recent, peer-reviewed academic studies on this issue have concluded that prevailing wage laws do not increase the total cost of construction. Prevailing wage laws result in higher productivity and taxpayer savings on materials, fuel, and equipment costs. The belief that reducing wages will reduce costs is based on a simple and incomplete understanding of the construction industry. A fundamental problem with this assertion is that labor costs are a low percent of total construction costs. For the type of projects covered by Wisconsin’s prevailing wage standard, labor costs and benefits are approximately 20% of total costs (Economic Census of Construction, 2012).

Therefore, it is not possible to obtain substantial savings from a cost component that is such a low percent of the total. Manzo et al (2016a) shows that the use of skilled construction labor is very sensitive to wage rates. As wages decrease, less productive employees replace more skilled craft workers. In a comparison of states with weak or no prevailing wage laws to states that have strong or average laws, value added per construction worker is 11% higher in those states with adequate wage policies. Material and fuel costs are also lower in these states. When prevailing wages are reduced, a variety of other changes occur that tend to offset, or cancel out the savings associated with cutting wage rates. These findings in Manzo et al (2016a, 2016b) are consistent with the overwhelming majority of research indicating that the costs of building public structures, such as schools, highways, and street and sewer projects, etc., are unaffected by the presence of municipal, state, or federal prevailing wage laws.

Conclusion

The U.S. economy is growing and construction contractors are scrambling for new employees. According to the Bureau of Labor Statistics, construction employment is expected to grow by at least 33 percent by 2020. At the same time, there are thousands of technically proficient people exiting the military every year and their numbers are expected to swell in the next few years as budget cuts reduce the size of the uniformed services.

For construction contractors looking to add skilled employees to their business, there isn’t a better pool of candidates to choose from than the men and women transitioning from the military.

One of the attractions of the construction jobs is the prevailing wage law which guarantees a minimum wage to all workers including military veterans. Prevailing wage laws establish local construction standards and ensure that blue-collar construction workers earn livable wages that reflect the markets where they live. By preventing the government from undercutting privately-negotiated local wages, prevailing wage laws create a level playing field for local businesses competing with out-of-area or foreign companies for bids.

A veteran who returns home to become a blue-collar construction worker or to open a construction business benefits substantially from prevailing wage policies. Manzo et al (2016a, 2016b) have shown how a repeal of the prevailing wage laws would adversely affect the military veterans. Their research uses reliable data and is based on sound analytical work. Therefore, their conclusions are robust. They convincingly show that a repeal of state prevailing wage laws would be an economic disaster for veterans. As reported in Soltz (2016), it would cost nearly 65,000 veterans their jobs, nearly 24,000 their employer-based health coverage, and forcing nearly 8,000 veteran-owned construction businesses to close their doors — permanently. It would also impose a $3 billion pay cut on veterans nationwide, and increase the number of veteran construction workers living in poverty by 50 percent.

The prevailing wage laws are, therefore, very much a veterans’ issue.

References

Manzo, Frank, Robert Bruno, and Kevin Duncan, (2016a) “The Impact of Prevailing Wage Laws on Military Veterans: An Economic and Labor Market Analysis,” VoteVets.org, May 10.

Manzo, Frank, Robert Bruno, Kevin Duncan, and Jill Manzo, (2016b) “Prevailing Wage and Military Veterans in Wisconsin: Applied Policy Brief,” Midwest Economic Policy Institute, August 18.

Sikma, Brian, (2016) “Myth: Prevailing Wage is a Veterans Issue,” Mediatrackers, October 24.

Soltz, Jon, (2016) “Prevailing Wage Is a Veterans Issue,” Blog, May 31.