Suppose you need your car repaired, but state law forbids you to hire the lowest cost, quality mechanic of your choice. Instead, state-approved mechanics charge far more and submit a blizzard of bureaucratic paperwork to prove it.
If you think this absurd proposal would waste your money, then you understand how Michigan’s prevailing wage law wastes your tax dollars. Solutions to stop the waste have been bottled up in both the Michigan House and Senate since last year, and the delay has been costly.
By state law, Michigan contractors building publicly funded state or school district construction projects are not permitted to control wages and benefits. Instead, the wages set by local labor union contracts prevail. If the lowest cost quality contractor pays employees less than this “prevailing wage,” he loses the bid.
This isn’t the national norm: Michigan is one of just seven states forcing taxpayers to pay what the local union contracts demand on public construction sites — wasting hundreds of millions of tax dollars from our economy and crippling future job prospects.
Yet the law has survived court challenges and nearly 50 years of faint political efforts to kill it.
Many studies prove the law is a remarkable drag on the economy. A November 2013 report from the Anderson Economic Group, commissioned by the Associated Builders and Contractors of Michigan, calculated that the prevailing wage law hikes construction costs on Michigan’s public education buildings by 25%, or more than $224 million each year. In the 10 years leading up to 2011, this overcharge added up to $2.2 billion.
Ohio suspended its prevailing wage law. The Legislature ordered an economic impact study and discovered the change saved taxpayers nearly 11% on school construction projects.
Costly paperwork burdens can also be enormous. The U.S. Government Accountability Office discovered significant delays in spending “weatherization” money from the recent federal stimulus because the federal prevailing wage law required the U.S. Department of Labor to research and calculate an approved local pay rate for every single county in the United States.
Businesses forced to jump through these hoops create fewer jobs. Entrepreneurs faced with these hurdles create fewer businesses. As a result, the generation that lost education funding to prevailing wage sees less opportunity when they hit the job market.
The Michigan Legislature passed the prevailing wage law in 1965 under Gov. George Romney. Today, state lawmakers should seize the chance to correct the mistake. Instead, qualified construction companies would be permitted to pay market rate wages. This would save taxpayers millions every year.
Before Michigan students set foot back in schools this fall, the Michigan Legislature and Gov. Rick Snyder should repeal prevailing wage and make sure money meant for the walls around our kids isn’t spent instead on pricey union paperwork.
Alfredo Ortiz is president of the national Job Creators Network, a national business advocacy organization.