In my last post I described how Oregon’s high minimum wage was causing high unemployment for teenagers and young adults. Now I want to talk about how Oregon’s other minimum wage law negatively impact Oregon. Specifically the Prevailing Wage Laws for public contracting known as the "Little Davis-Bacon Act".
These laws require that a minimum wage and benefits be provided for specific types of labor at what the state designates as the prevailing wage for that type of labor. These laws are administered and enforced by the Bureau of Labor and Industry or BOLI, thus the laws are often called BOLI laws.
The impact of setting artificial rates for labor which are higher than market in almost all cases is the inflation of the cost for public works projects throughout the state.
Whether erecting a new school, constructing a road, or installing a
new watermain, every public works project in Oregon over $50,000 has to adhere to the prevailing wage laws.
Even the denisons over at Blue Oregon worry about this law. Concerns over keeping small minority owned firms out of the public works market drive their concerns. But the real issue is how prevailing wage laws inflate the cost of government work.
The added cost limits the number of projects that can be completed by using up the finite resources available to construct them. Thereby causing both lower employment through less workers needed and limiting Oregon’s ability to provide the infrastructure needed by the citizens of the state.
There is also an inherent inflationary aspect to prevailing wage laws. An analysis done by Cal-Berkley faculty of low income housing projects showed that prevailing wage inflated the costs between 9% and 37%. This equated to 3100 units of housing from 1996 to 2002 that could have been built instead of paying prevailing wage.
One study of prevailing wage showed that Minnisota was setting an artificially high prevailing wage and that just the substitution of using the Federal Rates would have saved the state $126 to $171 million in 2002 or 7.4% to 10% of the project costs.
There are costs that are not directly related to the higher wages, they are the compliance costs. Here in Oregon, BOLI requires that public agencies include a copy of the law in every bid document sent out instead of just referencing it. The BOLI document is a thick approximately 100 page insert into every copy of every project bid in Oregon. Every contractor has to submit certified payroll reports and the agencies must keep these on record. BOLI must keep a staff to enforce these requirements through out the state.
So, Oregon’s Prevailing Wage law causes inflation, limits minority participation in government projects, raises the cost of those projects directly and indirectly, thus lowering the amount of projects government can complete. Why do we keep this arcane law that is a left over from the Great Depression?