Review of Keynesian Economics

Do prevailing wage laws increase total construction costs?

Fadhel Kaboub * * and Michael Kelsay * *

Keywords: prevailing wage laws, construction industry, labor unions

Abstract

Using regression analysis, the paper examines the claim that prevailing wage regulations raise public construction costs. The implicit assumption is that prevailing wages are highly influenced by the presence of strong labor unions, hence the attack on prevailing wage laws are part of the broader neoliberal attack on labor unions. Therefore, the empirical analysis in this paper compares construction costs in states that have repealed their prevailing wage laws with states that have not, and demonstrates that there is no empirical evidence supporting the neoliberal claims. The main contribution of the model is to point out the importance of separating public from private construction projects and to differentiate construction projects by type of structure. Without such distinctions, the analysis would conflate the causes of higher construction costs even for similar types of structures. The paper provides an institutional history of the prevailing wage laws in the United States; then uses regression analysis to test for the significance of prevailing wage legislation on construction costs. The empirical investigation provides some simple descriptive statistics from the F.W. Dodge data set; then constructs alternative models to refute the claim that prevailing wage laws cause higher construction costs. The article closes with a discussion of policy implications, summary, and concluding remarks.

Author Notes

The authors would like to thank the journal editors and two anonymous referees for very useful feedback on the first draft of this paper. The authors also would like to acknowledge financial support from the UMKC Economics Department and the Council for Promoting American Business.

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