Who Really Prevails Under Prevailing Wage?

Executive Summary

Executive Summary

Nevada state and local governments are compelled by state law to compensate workers employed on taxpayer-funded construction projects not at market rates but according to schedules set annually by the Nevada Labor Commissioner.

While these state-mandated wage rates are ostensibly supposed to approximate the wages that “prevail” in the marketplace, state regulations have instead been engineered to ensure that the wages reflect the pay schedules demanded by local trade unions.

The methodology used to calculate these wage rates — for 38 unique job classifications within each county — systematically excludes responses from non-union employers. The result is that, although union labor comprises only 13 percent of the construction labor force, trade unions in Nevada currently control 77 percent of the wage rates announced as “prevailing.”

As such, prevailing wage laws in Nevada are used to protect unionized labor — whose wage demands are typically far higher than wages seen in open labor markets — from competition. This wage tampering benefits established, and primarily unionized, construction workers by ensuring they receive a wage premium and most of the work on publicly funded projects.

This paper compares the prevailing wage rates required by the Nevada Labor Commissioner with those found in the marketplace, as reported by the state Department of Employment, Training and Rehabilitation. While there is dramatic variation across counties and job classifications, analysis shows that the average wage premium paid for the construction of public infrastructure is 44.2 percent in Northern Nevada and 45.8 percent in Southern Nevada.

In order to determine the total excess cost imposed on Nevada taxpayers as a result of the state’s prevailing wage laws, wage premiums are calculated for public works projects undertaken in two recent calendar years, 2009 and 2010. These amounts totaled to $625 million and $346 million, respectively. The smaller figure for 2010 does not reflect a declining cost of prevailing wage laws; it is the result of fewer projects being undertaken as tax revenues declined.

This analysis makes clear that prevailing wage laws add substantially to the cost of public infrastructure in Nevada. As a result, fewer public funds are available to construct additional projects or to help alleviate fiscal stress within state and local governments. Instead, lawmakers channel hundreds of millions in tax dollars each year to benefit unionized construction labor — with some of that money, of course, subsequently flowing back into the same politicians’ campaign coffers.

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Geoffrey Lawrence

Geoffrey Lawrence

Geoffrey Lawrence is a senior policy fellow at Reason Foundation.

Lawrence has broad experience as a financial executive in the public and private sectors and a decade as a think tank analyst. Lawrence was previously Chief Financial Officer and Chief Compliance Officer at Players Network, Inc, the first fully-reporting, publicly-traded marijuana company to be listed on a U.S. exchange. Lawrence oversaw all aspects of compliance with state and local laws and regulations for the licensed cultivation operations across two states.

Prior to that, Lawrence served as the senior appointee to the Nevada State Controller’s Office, where he oversaw external financial reporting, covering nearly $10 billion in annual transactions, on behalf of the state. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

Lawrence spent a decade developing market-based solutions to challenges facing state governments while working at the Nevada Policy Research Institute and, previously, the John Locke Foundation in North Carolina. Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.