Results of the Repeal – Did It Work?

Results of the Repeal – Did It Work?

A few weeks ago, Indiana passed the third anniversary mark since state legislators repealed the common construction wage law. Back in July of 2015, when the repeal went into effect, the intent was to provide financial relief for taxpayer-funded projects by reducing costs associated with construction wages.

At the time, former Governor Mike Pence, a major supporter of the repeal, said that “wages on public projects should be set by the marketplace and not by government bureaucracy.” During the campaign to get the repeal passed, supporters said the bill would help “cash-strapped” schools and other institutions keep project costs down.

So, now that a few years have gone by and data has had the chance to be developed, the big question is: Did it work? Did the repeal save public institutions the money it was supposed to?

Earlier this year, a report from the Midwest Economic Policy Institute (MEPI) straightforwardly titled “Effects of Repealing Common Construction Wage in Indiana” detailed the types of changes the repeal brought about across ten different construction market attributes. MEPI specializes in infrastructure investment and construction industry research.

To put it plainly, their report was a brutal look at the decision’s shortcomings and the damage its done to the construction industry.

“Repeal of common construction wage has led to a host of negative impacts on workers and the construction industry – including lower wages and more income inequality – while failing to deliver any meaningful cost savings or increased bid competition promised by those in favor of repeal,” researchers wrote.

Let’s take a look at the ten construction outcomes that researchers studied and how they have been impacted.

 

Construction Wages

Right off the bat, it’s fairly plain to see the people most impacted by the repeal are Indiana construction workers themselves, and vicariously their families. Just how much? A straight-up loss of 8.5 percent, even accounting for all the various factors that affect a person’s hourly wage (such as age, race, union membership, and other factors).

This wasn’t just a fact reflected in this report alone, it was actually predicted in additional research reports published at various times before and after the repeal went into effect (MEPI, Manzo, Bruno, Littlehale, et. al)

 

Wage Inequality

When you look at the impact on wages for all workers, as mentioned in the section above, you see an 8.5 percent decrease in average hourly wages. But that figure is not uniform among all demographics, and the lowest-income workers are experiencing a much more pronounced loss.

“Common construction wage acted like a minimum wage for skilled construction workers, reducing income inequality by stabilizing the wage floor,” the report said. Now that it’s gone, hourly earnings for individuals in the lower income quadrant (bottom 25 percent) are experiencing losses of 15.1 percent.

 

Worker Skill Levels

After the repeal, Indiana’s percentage of lower-skilled workers went up by about 4.5 percent. Interestingly, researchers noted that neighboring states saw a slight decrease in lower-skilled labor, indicating that some of those individuals made their way into the Hoosier state.

“Repeal of common construction wage could explain almost all the difference between Indiana, which saw an increase in the low-skill share of construction workers, and the three neighboring states that had and maintained their prevailing wage, which cumulatively experienced a decrease in these less-educated workers,” the report stated.

 

Veterans in Construction

Indiana has seen approximately a 1.3 percentage-point drop in the number of veterans employed in construction occupations since the repeal, but researchers were quick to point out this figure isn’t statistically significant. They said the lower wages may have reduced the appeal of construction jobs, but this is only a weak correlation and more data is needed to determine the full scope of the impact.

 

Worker Productivity

To get a gauge of worker productivity in construction, researchers looked at GDP per employee in the industry as a metric. Between 2014 and 2016, Indiana workers produced a GDP increase of 4.4 percent, or roughly $2,900 annually.

In our neighboring states of Illinois, Michigan, and Ohio, the growth rate was about 9.8 percent, or about $7,000. This means that Indiana’s growth is lagging behind our neighbors with prevailing wage laws. Statically, our productivity grew by 5.3 percentage points less than our neighbors.

 

Worker Turnover

Perhaps unsurprisingly, the corresponding decrease in construction wages produced an uptick in the industry’s turnover rate. In the year after the repeal, Indiana’s turnover rate increased by 0.9 percent, according to quarterly workforce indicators from the U.S. Census Bureau. Interestingly, our neighboring states experienced a 0.3 percent decline in employee turnover.

“As wages decreased and low-skill employees entered the workforce, more productive workers may have exited the industry in search of another career that offers a middle-class lifestyle,” the report said.

 

Public Works Employment

Counter to what supporters of the repeal had hoped for, the growth rate for individuals employed on public works projects slowed in Indiana compared to our neighbors with prevailing wage laws. Specifically, our rate of growth was about 1.5 percentage points lower.

“Repealing the law was not a boon to the public works construction industry,” the report said. “If the repeal resulted in lower construction costs, then it might have allowed local governments to complete more projects. If local governments took on more projects, then the number of workers employed on public works construction projects would have increased significantly. Instead, public works construction employment grew slower in Indiana than in the three neighboring prevailing-wage states.”

 

Contractor Competition

Using contractor bidding data from the nonprofit Indiana, Illinois, Iowa Foundation for Fair Contracting (IIIFFC) organization, researchers found no significant change in contractor competition following the repeal. Looking at thousands of public projects, there were an average of 3.0 bidders on each project prior to the repeal. After the repeal went into effect, there were an average of 2.9 bidders for each public project.

 

Union Market Share

Prior to the signing, supporters of the repeal argued that the common construction wage favored labor unions. They had argued that repealing the law would enable nonunion firms to gain a greater market share. That didn’t happen. In fact, the union market share has slightly increased since the repeal, from 87 percent to 91 percent.

“There is no evidence the common construction wage favored union contractors,” researchers pointed out.

 

Public School Projects

And finally, the kicker. Did the repeal lower project costs for Indiana’s public institutions? No. There’s been relatively no change at all.

In examining bid wins and costs for over 330 public school construction projects throughout northern Indiana, researchers found that “The average cost per project built with common construction wage was not statistically different than the average cost per project built without common construction wage. Repeal has neither reduced the market share of union contractors nor lowered construction costs for taxpayers.”

 

Final Tallies – No One’s Winning

It seems that every promise outlined in the repeal turned out to be the complete opposite in the end. Taxpayers aren’t saving money on public projects, “cash-strapped” schools are still paying the same as they were beforehand, men and women working in construction are making less, wage disparities are growing whereas competition hasn’t, and our state’s output is lagging behind our neighbors.

To answer our original question as completely as possible – Did it work? – based on the findings we’re presented with today, we can only answer simply: No, it hasn’t.

 

 

 


What Was the Common Construction Wage Law?

For just about 80 years, the common construction wage law (sometimes referred to as a “prevailing wage” law in other states) required local representative panels to set minimum construction wages and benefits for public works projects based on what was determined to be fair for their own counties.

The rule was first created to prevent contractors from outside Indiana from undercutting local firms on state-funded projects.

(Highway and other Department of Transportation projects were exempt from the law.)


 

Category Cover Story, Features