Politics & Policy

Common Sense Prevails over Kentucky’s Prevailing Wage

(Image: Otnaydur/Dreamstime)
Mandating above-market wages on public construction cheats the taxpayers.

When it comes to Kentucky politics, all attention is currently focused on the swift passage of the state’s right-to-work law, which was enacted on January 7. The measure made Kentucky the 27th state — and the last in the South — to join the right-to-work revolution, with all its many benefits.

But it was not the only laudable law enacted that day. Governor Matt Bevin also signed a bill repealing the state’s prevailing-wage mandate — an important measure that deserves more attention in Kentucky and beyond.

According to Kentucky’s Labor Cabinet (a state agency), the prevailing wage is the legally mandated hourly rate on public construction projects — state and local — that cost more than $250,000. (Some 30 states have similar laws.) This covers a huge number of projects, including road construction and repairs, bridge building, school construction, and more. The exact wage varies county by county, as calculated by the Labor Cabinet.

On paper, the prevailing wage sounds great. In practice, it just raises the cost of all public works, gouging taxpayers without any corresponding benefit.

Kentucky’s Labor Cabinet sets the prevailing wage after conducting public hearings, or by simply adopting federal rates. In the case of public hearings, mostly union workers attend, even though they represent a clear minority of the state’s workers. Their goal is simple: To ratchet up their own wages so that only unionized contractors can compete in bidding for projects. By rigging the market in their own favor, they leave fewer tax dollars available for other essential projects.

Don’t take our word for it. A study from the Kentucky Legislative Research Commission recently concluded that the prevailing wage increases labor costs by 51 percent, and total construction costs by 26 percent. One member of the Kentucky Superintendents Association, Wilson Sears, estimates that the prevailing wage increases public-school construction costs by 17 to 20 percent.

Kentucky already spends over a billion dollars a year on public construction projects, so a 26 percent increase in construction costs is simply unacceptable. With the money spent on above-market wages for construction projects, Kentucky could have built countless other public projects at lower costs, benefiting the public instead of a small group of construction companies. At a public hearing, Sears stated that “for every four schools we build, we could probably get another one” without a prevailing wage.

With the money spent on above-market wages for construction projects, Kentucky could have built countless other public projects at lower cost.

The evidence shows that the prevailing wage’s claimed benefits don’t add up, either. The mandate’s union supporters invariably argue that it improves the safety and quality of public construction projects. But the Legislative Research Commission found that higher construction wages had no tangible effect on building quality or a safer work environment. The Cato Institute reached the same conclusion after reviewing mandates across all 50 states.

No wonder Kentucky repealed its prevailing-wage mandate. It’s a burden on taxpayers and a benefit to no one besides connected firms and labor unions trying to stack the deck in their own favor. Now, freed from the unions’ grasp, the Bluegrass State stands to reap serious rewards in the years ahead. 

Other states, including some of the ones surrounding Kentucky, have repealed parts or all of their prevailing-wage laws in recent years. Ohio eliminated prevailing wage for school construction in 1997, and the state’s Legislative Services Commission estimated a total savings of $487.9 million over the next four years. Urban areas, which often have the highest need for public-works projects, saved the most, a whopping $310 million.

Michigan made a similar move in 1994, when it briefly eliminated the mandates. Unsurprisingly, the result was more competition, more jobs, and lower costs. One study by the Mackinac Center found that an extra 11,000 jobs were created as a result. Despite these gains, the mandate was reinstated three years later. From 2002 to 2011, the state averaged higher public-construction costs of $224 million annually — enough to have given teachers a $1,600 raise or repaired other critical infrastructure needs.

And then there’s Indiana. In 2015, then-governor Mike Pence signed a repeal of the state’s prevailing wage, which the state called the “common construction wage.” It’s now estimated to reduce costs between 20 and 30 percent on state-financed projects, saving taxpayers hundreds of millions every year.

Kentucky has taken a bold step by ending its wasteful prevailing-wage law. In the years ahead, the state will have extra funds to create more schools, parks, and public-works projects, without the need to gouge the taxpayer for more money. By all means, let’s praise the passage of the state’s new right-to-work law, but let’s also applaud state lawmakers for giving Kentucky taxpayers the most bang for their buck.

Julia Crigler is the Kentucky state director and Teresa Oelke is the senior vice president of state operations at Americans for Prosperity.

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