Why wage-law ‘turnaround’ is a more of a beat-down for the economy

By Eric Zorn – Chicago Tribune

Inherent in this gloss is the assumption that items on Rauner’s “turnaround agenda” wish list will actually improve the state’s business climate, which will in turn increase overall tax revenues and put us on track to solving the various problems now besetting us.

But is it necessarily so?

Today let’s take, for example, Rauner’s demand that the legislature repeal the state’s Prevailing Wage Act.

That 1941 law, similar to laws in 32 states and the federal Davis-Bacon Act of 1931, requires contractors on publicly financed construction projects to pay their workers what amounts to union wages in that area.

Eliminate that requirement, the thinking goes, and it becomes cheaper to build schools, roads, bridges and so on. Taxes will fall accordingly. Citizens with more money in hand will spend more, so business will create new jobs, closing our budget gap. The virtuous cycle will lift us all.

But a substantial body of research suggests that the hoped-for virtuous cycle sparked by a repeal of prevailing wage laws is more likely to become a death spiral.

“Eliminating prevailing wage would have broad-reaching negative impacts across the California economy,” said a report by Colorado State University economist Kevin Duncan issued earlier this year in response to a Rauner-like proposal in California.

Why? Because if construction contractors pay their employees less or hire cheaper labor from elsewhere, the local workers are likely to spend less in the community, and more of them will end up on public-assistance programs. Duncan forecast a net loss of 17,500 jobs and a $1.4 billion hit to California’s bottom line.

In this, Duncan echoed the findings in “A Weakened State: The Economic and Social Impacts of Repeal of the Prevailing Wage Law in Illinois,” a 2013 report from the School of Labor and Employment Relations at the University of Illinois at Urbana-Champaign.

The authors wrote that “indirect effects of repeal would result in about 3,300 net jobs lost … more than $44 million in lost state and local taxes and roughly $116 million in lost federal tax revenue” as construction wages fell an estimated 5.46 percent.

When contractors employ less-skilled labor in efforts to submit the lowest bids, quality is likely to go down and workplace injuries likely to go up — the report estimates seven additional deaths on construction sites each year.

A notable effect, they predicted, would be “a redistribution of wealth from construction workers to the owners of construction firms.” Which is not a turnaround so much as it is more of the same. read more