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Minnesota's prevailing-wage laws a 'win-win-win,' researcher says; critics call for changes

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ST. PAUL—Are Minnesota's rules setting pay on state-funded public construction projects a boost for skilled labor or a barrier for workers hoping to climb the employment ladder?

When it comes to school construction, new research by the Midwest Economic Policy Institute found Minnesota's prevailing-wage law resulted in more local hiring, higher pay and stronger apprenticeship programs.

After examining more than 600 school construction bids, the researchers found that those that paid higher wages did not add to the overall cost of the projects because skilled workers were more efficient and made fewer mistakes.

School construction is big business in Minnesota. Districts across the state are renovating buildings, improving security and adding classrooms for young learners. Since 2015, voters have approved nearly 100 capital levies for projects worth billions.

"Minnesota's prevailing wage is a win-win-win for Minnesota taxpayers, the state's economy, and the construction industry," said Frank Manzo IV, director of the policy institute, who authored the study with Kevin Duncan, an economist at Colorado State University in Pueblo.

"When wages rise, contractors make changes to improve the productivity of their labor," Duncan added.

The researchers say more than a dozen other peer-reviewed studies done since 2000 have reached similar conclusions.

But John Phelan, an economist for the Center of the American Experiment, disagrees. Phelan says there is mounting evidence that prevailing-wage laws drive up government spending on infrastructure and that is why a growing number of states are repealing wage laws.

Phelan cited a 2016 study by the Congressional Budget Office, a nonpartisan government spending analyst, that found repealing such laws nationwide would save $13 billion over a decade.

"What you are doing is making some people better off at the expense of others," Phelan said, noting that prevailing wages often go to unionized workers. "They absolutely increase costs. There isn't a lot of disagreement."

A policy in decline

Prevailing-wage laws have their roots in the Davis-Bacon Act approved by Congress in 1931 and signed into law by President Herbert Hoover. At the height of the Depression, the law was created to ensure that government projects paid wages that corresponded to other local rates.

Phelan says the regulations had a nativist underpinning at the time because they were designed to keep out-of-state firms, using cheaper labor of black and immigrant workers, from undercutting local contractors.

Today, prevailing-wage laws continue to be a barrier for lower-skilled laborers looking to work their way up a career ladder in the building trades, Phelan said. They also can discourage younger workers and people of color from getting into the construction fields altogether.

"We can't keep doing things like this, that push them out of the labor market, and then scratch our heads as to why," he said.

At one time, 42 states had prevailing-wage laws, but over the years, a number of the regulations have been repealed or struck down with court challenges.

There are now 26 states with these laws on the books, including two that recently modified the regulations.

Repeal would be a bad idea, Duncan and Manzo say, and state leaders need to look no further than Indiana, where they say wages fell and project costs grew after prevailing wages were eliminated.

Impact on workers and businesses

Duncan and Manzo looked at more than 640 school construction project bids between 2015 and 2017 in the seven-county Twin Cities metro area.

About 45 percent of those winning bids paid prevailing wages, which are set for each county by the Minnesota Department of Labor and Industry using local rates paid for similar work in the area.

Prevailing-wage jobs more often went to local contractors who paid workers more and were more likely to offer insurance and other benefits, they found. These workers also were less likely to have to rely on government assistance such as food stamps.

That's ample evidence for Don Mullin that the regulations are a good thing. Mullin is the executive secretary for the St. Paul Building and Construction Trades Council, a union advocate, and says such policies help make communities vibrant.

"When you have a strong economy, it builds a strong community and affects a lot of things," Mullin said. "Prevailing wage provides a pathway to keep money local and spend those dollars in the community. How is that a bad thing?"

Mullin also emphasized the study's findings that prevailing-wage contractors were more likely to hire apprentices.

"These programs are building the next generation of the workforce," he said.

But Adam Hanson, director of government affairs for the Associated Builders and Contractors of Minnesota and North Dakota, says that while prevailing wages benefit some, they hurt others. The wages can be artificially inflated for some jobs, and that can discourage small and minority contractors from bidding on projects.

And workers might not see all of that higher pay in their checks after union dues and other costs are deducted, Hanson said.

"These laws do act as a fence to smaller contractors who are trying to get off the ground," said Hanson.

Impact on schools

Faced with aging and outdated buildings, a growing need for space for young learners and a desire to fortify facilities as school shootings persist, Minnesota districts have been on a bit of a construction spree.

Since 2015, Minnesota voters have backed 93 levies for infrastructure projects worth a total of $3.4 billion. Tens of millions more come in annually from state funds and school-board-approved measures.

Minnesota also typically borrows hundreds of millions every two years to repair and improve higher-education facilities.

The different funding streams for school construction projects mean district officials need to be intimately aware of Minnesota's prevailing-wage laws.

"Even if you have a penny of state aid in it, prevailing wage comes into play," said Gary Kawlewski, director of finance and operations for Buffalo-Hanover-Montrose Schools.

Kawlewski, a member of the Minnesota Association of School Business Officials, didn't dispute or confirm the findings of Duncan and Manzo. But he agreed with Hanson that a competitive construction market likely played a role in the parity of project costs.

Repeal, revisions or recommitment?

Opponents of Minnesota's prevailing-wage laws realize it will be difficult to repeal the measure entirely. But they hope the issue will come up on the 2018 campaign trail as candidates stump for votes and answer questions about how taxpayer money is spent.

Hanson, of the Associated Builders and Contractors, says repeal might be tough, but Minnesota could do a lot more to make prevailing wages more fair and equitable.

Hanson is critical of the way the pay rates are calculated, saying the current method unfairly inflates wages in some sectors. He'd like to see Minnesota instead use average pay for different categories of skilled workers.

Phelan agrees that changes are overdue. He says Minnesota's aging population and lower workforce participation among the young will ultimately put increased stress on state budgets and the ability to pay higher wages.

"It will not be affordable to keep paying artificially high prices," Phelan said, adding that when it comes to government spending: "The only bottom line is the bottom of taxpayers' pockets."

But Duncan and Manzo say they hope Minnesota will continue a commitment to prevailing wages. They argue that their research shows the benefits are many — higher wages, more apprenticeships, better access to health care — and there is little to no downside.

"This is a critically important issue," Manzo said.