Unions prevail, while most Nevadans struggle

Prevailing wage laws cost taxpayers billions

By Geoffrey Lawrence
  • Tuesday, March 29, 2011

In the 2011 Nevada Legislature, lawmakers in the majority are again carrying water for organized trade unions — from the Keynesian "jobs fund" proposal to the mercantilist "Nevada Jobs First" proposal.

Longtime Nevada residents know this is nothing new. It began in the 1930s, when legislators first adopted the state's prevailing wage requirements on public works projects.

Prevailing wage laws in Nevada are adapted from federal language contained in the Davis-Bacon Act of 1931. The explicit purpose of these laws is to prevent a free market from allocating individuals with valuable trade skills to areas where they are most needed.

Since the law's explicit purpose is to undermine this critical role of markets and artificially ensure regional scarcity for skilled labor, it should come as no surprise that the law substantially increases labor costs. The only question becomes: "By how much?"

That question will be explored in detail by a forthcoming Nevada Policy Research Institute policy study, which will look at the two surveys Nevada conducts of wages in the construction industry.

One is administered by the Nevada Labor Commissioner to determine prevailing wage rates. That survey's methodology was intentionally biased by the lawmakers who designed it to over-represent rates received by union labor. The result is that "prevailing wage" rates do not, as the name indicates, approximate the wage rates that prevail in the marketplace. Instead, prevailing wage rates are set to the rates that trade unions would like to receive.

The Nevada Department of Employment, Training and Rehabilitation conducts a second survey that examines the wage rates actually being paid by employers in the marketplace. This survey is conducted in conjunction with the U.S. Department of Labor to produce the federal Occupational Employment Survey, which simply provides statistical information on employment levels and wage rates across different industries.

When the data compiled in the DETR survey is compared with the prevailing wage rates published by the Nevada Labor Commissioner, it becomes instantly clear that wages paid on public works projects in Nevada are far out of line with wages paid to workers performing the same tasks on private construction projects.

Accounting for the difference in the value in fringe benefits, the average hourly compensation on public works projects in Nevada is 48 percent higher than the average compensation as reported by DETR. This difference varies across counties and job classifications and is substantially higher in some cases. For instance, an unskilled laborer in Clark County receives a 92 percent higher wage on public works projects than on a private sector job.

A standard assumption is that labor costs account for roughly 50 percent of construction project expenses. By applying this knowledge and the wage difference of recent public works projects, it is possible to quantify the excess cost to taxpayers of paying state-mandated prevailing wages. This calculation reveals that taxpayers devoted $1.336 billion in unnecessary labor costs in just 2008 and 2009.

While this over-spending is a windfall to politically connected trade unions, it necessarily means far less money is available to pay for basic government services. This drives union-complicit lawmakers to whine about "insufficient revenue" for the next budget cycle, whereupon they try to impose even higher taxes on Nevada families and businesses. It is a vicious circle in which lawmakers loot the public and funnel the money to unions.

These same lawmakers are now pretending to "create jobs" in the construction industry through a "Nevada Jobs Fund" to funnel new money to trade unions in public works projects paying prevailing wage rates.

If lawmakers were really concerned with reducing unemployment among construction workers, they would eliminate the prevailing wage requirement altogether. This would make labor more affordable and allow contractors to hire more workers — while also ensuring that taxpayers get value for their money.

But this isn't really about jobs. These lawmakers know that a portion of the union payoff will eventually flow back to their own coffers, helping them secure their grip on power.

The legislature's new job creation effort isn't about jobs. It's about campaign contributions. And it's about forcing the very taxpayers at whom politicians publicly thumb their nose to finance their reelection.

Geoffrey Lawrence is deputy director of policy at the Nevada Policy Research Institute. For more visit http://npri.org. This article first appeared in the April 2011 edition of Nevada Business.

blog comments powered by Disqus