Prevailing Wage Regulations and School Construction Costs: Cumulative Evidence from British Columbia

• DOI: http://doi.org/10.1111/irel.12072
• Published date: 01 October 2014
• Date: 01 October 2014
• Author: Mark Prus,Peter Philips,Kevin Duncan

Prevailing Wage Regulations and School

Construction Costs: Cumulative Evidence from

British Columbia

*

KEVIN DUNCAN, PETER PHILIPS, and MARK PRUS

The effect of prevailing wage laws on the cost of public construction has been

the subject of an ongoing public policy debate. We measure this effect by com-

paring the public/private construction cost differential for schools built before and

after British Columbia’s Skills Development and Fair Wage Policy. Regression

results indicate that public schools were 40.5 percent more expensive to build

prior to the policy. This differential was 40.1 percent after the policy’s enforce-

ment. However, this change is not statistically significant. Regression results also

indicate a stable construction cost function over the policy period. These results

indicate that the effect of fair wage requirements was not different from zero in

terms of magnitude or statistical significance. Combining these results with the

findings of our previous research provides a comprehensive view regarding the

effect of the British Columbian prevailing wage policy on school construction.

This body of research, utilizing a variety of statistical methods, provides consis-

tent evidence indicating that a relatively strong prevailing wage policy was not

associated with changes in the efficiency or productivity of construction that

contributes to increased building costs.

Introduction

PREVAILING WAGE LAWS,AT THE FEDERAL,STATE,OR MUNICIPAL LEVEL,REQUIRE

the payment of locally determined minimum wage and benefit rates for con-

struction workers employed on publicly funded capital projects. Several stud-

ies identify the benefits of these laws including improved construction

worker skills, greater worksite safety, the extension of health benefits to the

*The authors’affiliations are, respectively, Colorado State University–Pueblo, Pueblo, Colorado. Email:

kevin.duncan@colostate-pueblo.edu; University of Utah, Salt Lake City, Utah. Email: Peter.Philips@eco-

nomics.utah.edu; State University of New York, Cortland, New York. Email: Mark.Prus@cortland.edu.A

data file, additional results, and copies of the computer programs used to generate the results presented in

the paper are available from Kevin Duncan of the Hasan School of Business, Colorado State University-Pue-

blo, Pueblo, CO 81001.

INDUSTRIAL RELATIONS, Vol. 53, No. 4 (October 2014). ©2014 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

593

construction industry, and increased state and local tax revenues (see Fiscal

Policy Institute [2006] for a review). However, the public policy debate is

centered on the impact of prevailing wage laws on construction costs. Sev-

eral researchers have responded to the policy focus by examining the impact

of wage legislation on the cost of building public schools. While researchers

agree that prevailing wage laws are associated with increased wage and bene-

fit rates for construction workers, they disagree over the effect of the legisla-

tion on building public schools.

Previous research, which is critically reviewed below, measures the impact

of prevailing wage laws on school construction costs by examining the effect

of required wage rates on labor costs, comparing costs between states with and

without wage requirements, and conducting a before-and-after test associated

with a change in policy. These approaches may yield biased cost measures

ignoring the relationships between wage changes, input substitution, and labor

costs, overlooking policies other than prevailing wage laws that differ between

states, and omitting a control group in before-and-after tests. This study avoids

these limitations by exploiting a rare natural experiment associated with the

introduction of a prevailing wage policy within a particular jurisdiction. The

policy change allows for a comparison of school construction costs for projects

covered by the wage policy with a control group in a standard difference-in-

differences approach.

Literature Review

Prior school construction cost studies employ a variety of techniques with

data from various regions and yield prevailing wage cost estimates ranging

from the double-digits to zero, in a statistical sense. For example, Keller and

Hartman (2001) compare labor costs under prevailing wage regulations and

open-shop conditions and report that Pennsylvania’s prevailing wage law adds,

on average, 2.25 percent to the cost of building public schools. This finding is

based on the records of twenty-five Pennsylvania public school construction

projects that include project labor hours and labor costs. These records indicate

a total labor cost of approximately $26.4 million for the twenty-five public

school projects built under the state’s prevailing wage policy. To obtain an

estimate of labor costs if the schools had been built without prevailing wages,

the authors used wage rate data from a large nonunion contractor. These pri-

vate-sector wage rates are multiplied by the recorded number of project labor

hours and yield a labor cost estimate of approximately $22.1 million. There-

fore, the authors conclude that the prevailing wage regulation added about

$4.3 million ($26.4 million –$22.1 million) to the labor cost of building the

594 / DUNCAN,PHILIPS,AND PRUS