Prevailing wage data collected from the Department of Labor were compared with median wages of construction occupations in seven metropolitan areas in New York and outside the state. Wage differential studies are prone to two primary areas of criticism. The first is the way in which some of them calculate the additional wages resulting from prevailing wage regulations. But miscalculation of wages under prevailing wage laws is an implementation problem that does not reflect the merits of the laws themselves.
Why did the agency exclude the 18 projects for which prevailing wages were set too low? The inclusion of these projects might have offered an entirely different picture of the net impact of the Davis-Bacon law.
GAO also acknowledged that its sample of projects was too small for its calculations to have statistical validity. Mackinac Vedder assumed that a wage differential in the Detroit suburbs would be the same in the rest of the state, but did not test this assumption.
The second and more fundamental criticism of these studies is how they allocate the higher wages they estimate to contract costs.
These studies assume, rather than empirically examine, the relationship between higher wages and construction costs. In contrast to the other methodological approaches discussed in this review, the wage differential studies do not rely on natural experiments to compare costs of contracts subject to and not subject to prevailing wage regulations.
As a result, they are unable to control for other factors that influence construction costs. As outlined above, there are several reasons why higher wages might not be passed through and, thus, assuming that they are is not a safe assumption. The flawed assumptions of the wage differential approach, and the inability to control for other cost influences, limit its ability to determine with much validity whether prevailing wage laws raise government contracting costs.
The existence of prevailing wage laws in some jurisdictions but not others and the fact that in some jurisdictions some public contracts are subject to the regulations but others are not create an opportunity for a natural experiment to study the impact of prevailing wage legislation on government construction costs.
The cross-sectional approach used in the studies described here use econometric techniques to compare costs of construction when it is subject to prevailing wage rules with the costs when it is not. This method reduces the need to control for time effects and seasonality concerns within the construction industry, although it is necessary to control for regional differences.
In the first econometric cross-sectional study of prevailing wage laws and government construction costs, Fraundorf et al. The model included controls for a range of factors: regional variation, project size, and building type. The results showed that public construction was an average of The authors acknowledged that this estimate seemed high. However, they were unable to explain the discrepancy. Prus replicated the Fraundorf model but was better able to isolate the effects of prevailing wages from other influences on construction costs.
Rather than compare federal projects with private construction, he compared costs of public and private projects in states where prevailing wage laws existed and places where they did not. This finding suggested that the earlier Fraundorf study had measured price differences between public and private construction attributable to causes other than prevailing wages.
Controlling for construction cost differences between states, Prus did not find a statistically significant difference in construction costs in states with prevailing wage laws and those without.
In a study of construction costs in the Intermountain and Southwest regions, Phillips compared construction cost data in five states with prevailing wage laws with four states without prevailing wage laws. The author attributed this finding to higher productivity among workers in states with prevailing wage laws. Phillips conducted a study of school construction costs in the Great Plains states. New school construction data by school type showed that costs were not statistically different in states with prevailing wage laws than in states without them.
Prus examined both public and private school construction across the mid-Atlantic states with and without prevailing wage laws and across counties in Maryland with and without the laws. The study found that public schools cost more than private, irrespective of prevailing wage laws. In addition to this distinction, Prus identified region, the distinction between new and renovated buildings, building type, building material, and building siz e as important predictors of construction cost differences, but he found no evidence of an impact of prevailing wage laws.
Azari-Rad et al. The studies found that building type, project size, seasonal start times, and whether the school was a private or public building had a significant impact on contract costs.
But controlling for construction costs among states, this study found that construction costs were not statistically different in states with or without prevailing wage regulations.
After Fraundorf, only one cross-sectional study has found prevailing wage regulations to be associated with higher government contract costs. A study by Dunn et al. The researchers used two different models. The 31 states with prevailing wage laws had higher rates of construction training programs, and trainees were more likely to complete their programs compared to states without prevailing wage laws.
This study suggested that productivity was a key reason why other studies could not find higher contract costs from prevailing wage laws.
The weight of the evidence from the cross-sectional studies is that prevailing wage regulations do not impact construction costs. All but two studies found that prevailing wages do not raise costs of government construction and, of those two, the findings from Fraundorf were not replicated when the model was improved, most notably by controlling for differences between public and private construction other than prevailing wages. Researchers have speculated that the factors causing higher public costs include different building design specifications Fraundorf ; Prus ; Azari-Rad et al.
Dunn et al. Why this one study contradicts the general econometric literature is not yet known. Labor-intensiveness, skill, and material-saving technologies involved in affordable housing construction might be sufficiently different from those used in other public building and road construction that the operation of prevailing wage regulations works differently in this sector. If this is the case, then prevailing wage regulations might operate differently in the affordable housing sector, which is a small share of government construction relative to construction on highways, schools, and infrastructure.
If these results are replicated, then the Dunn study may raise questions about prevailing wages in subsidized housing construction. However, it does not represent the rest of the current literature, which has shown that prevailing wage laws have no effect on contract costs. Another approach is to compare construction costs before and after the passage or repeal of a prevailing wage law.
These studies generally account for time trends in the construction industry. He examined federal construction projects that were re-bid during the day suspension and compared the new bids to those originally submitted.
In a study of new school construction in British Columbia, researchers looked at six years of contract costs before and after the adoption of a prevailing wage law in Once the authors controlled for the business cycle, type of building, the number and size of the contractors, regional differences, and time trends, they found no statistically significant increase in construction costs. This indicated that the cost differences were explained by numerous factors other than the prevailing wage legislation.
Phillips a used a sample of new school construction projects for a pooled cross-sectional time series approach to examine cost effects of prevailing wages in Kentucky, Michigan, and Ohio. The study found no statistically significant increase in construction costs associated with prevailing wage laws. In summary, with the exception of the Thieblot study, which faced a critical methodological challenge, time-series studies generally find that prevailing wage laws do not increase construction costs.
Recent case studies of prevailing wage legislation have analyzed not just costs to government, but also the wider costs or ben efits to society. These studies demonstrate implicit threats to the overall state economy, since income losses could lead to reduced consumer spending.
Other studies show that prevailing wage laws discourage unscrupulous contractors who compete by hiring low-skilled labor, cheating on payroll taxes, or risking safety concerns at construction sites.
Kelsay et al. Prevailing wage laws have been shown to have generally positive effects on the construction industry by expanding the pool of construction workers trained through apprenticeship programs. Studies have shown that apprenticeship training programs are fewer in states without prevailing wage laws. As part of the Kansas study, Philips conducted a cross-state examination of construction apprenticeships in prevailing wage and non-prevailing wage states.
Researchers have also examined occupational injuries and prevailing wage legislation. Fatality rates were even lower in states where prevailing wages were strongly enforced Philips In the decade following the repeal of prevailing wages in Utah, cost overruns tripled, and Phillips et al. Data limitations have hindered further study of the question of cost overruns; most studies of contract costs use data from F.
Dodge on the accepted bid prices,24 but these data do not capture change orders associated with cost-overruns Azari-Rad et al. An overwhelming preponderance of the literature shows that prevailing wage regulations have no effect one way or the other on the cost to government of contracted public works projects.
And as studies of the question become more and more sophisticated, this finding becomes stronger, and is reinforced with evidence that prevailing wage laws also help to reduce occupational injuries and fatalities, increase the pool of skilled construction workers, and actually enhance state tax revenues. The two other major federal laws are the Walsh-Healey Government Contracts Act of , which covered employers that manufacture or supply materials to the federal government, and the Service Contract Act of , which affects suppliers of personal and business services.
Note that the total cost of construction contracts in this calculation excludes land acquisition, architectural design, or management fees. Wages were weighted according to the number of workers in the occupation and by metropolitan area.
This determination was made following conversations with construction contractors. The authors do not state whether this estimate excludes profits or other items for contractors. The authors state that productivity, cost of materials, and the labor share of construction costs would remain constant for purposes of the analysis.
The authors collected construction cost data from in-person interviews with contractors across the country, and selected a representative sample of private and public nonresidential construction projects started in and This range included results from variations on two different econometric models. The ordinary least squares model included two variations of the dependent variable, one with a restricted definition of construction costs that included only site preparation and building construction, and one that included all costs, such as site preparation, architect and design fees, and engineering management fees.
These same dependent variables were tested in the instrumental variables model. All three states had prevailing wage laws for school construction during some portions of the study period.
Dodge bid price data exclude management costs, architectural fees, and land acquisition. Allen, Steve. Enforcement of prevailing wage laws could also affect total costs. In response to anecdotal evidence that school construction costs grew more rapidly than costs in the overall construction market, the authors examine the role of prevailing wage laws and inflationary pressures in school construction. In the model, dummy variables were used to identify public and private schools and the presence of prevailing wage laws.
The results showed no significant cost differences in school construction projects related to prevailing wage laws. If you are bidding on a contract or already working for a government entity, there are specific requirements to ensure compliance with the Davis-Bacon Act. One of the requirements is the concept of prevailing wage. State laws are different from federal laws. So, it is essential to understand the difference between these laws.
According to the Davis-Bacon Act, contractors and sub-contractors must pay their workers employed under contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. These federal laws affect state and local projects funded partially or wholly by federal funds.
Here are some things to know about federal prevailing wage laws:. It is sometimes called the Little Davis-Bacon law. These laws set thresholds for salary requirements. As with federal law, states with prevailing wage laws only apply to construction and specific jobs.
Contractors and subcontractors may think that prevailing wage laws do not apply to them because their project is not funded by the federal government. However, many states have prevailing wage laws that cover state-funded public projects , such as public buildings and roads. State prevailing wage laws differ in their requirements, such as:. The training modules, presented by WHD staff and its federal agency partners, provide contracting officials with information on the process of obtaining wage determinations; adding classifications to wage determinations conformances ; compliance principles, and enforcement process under both the Davis-Bacon Act DBA and the McNamara Service Contract Act SCA.
Specifically, two training modules are currently being offered online. Get an overview on your next all-in-one back-office solution. Construction Accounting. HQ Platform. Construction Payroll Service. Estimating Software. McCormick Systems. CPA Firms. Hardware Requirements. Hosted Requirements. Mobile Requirements. On Premise Requirements. Search Submit Clear. Live Demo. Schedule a Live Demo Today! Watch the Full Demo Video Now! See where the construction industry is heading.
Download the FREE report x. We use cookies to ensure that we give you the best experience on our website. Continuing to use the site tells us you're fine with this. Understood Privacy Policy. DBRA include roughly 60 statutes that contain prevailing wage provisions. They assist Davis-Bacon projects through grants, loans and insurance.
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