‘Prevailing Wage’ Laws Have Little Practical Value

We are what we eat, right? So society has an interest in assuring that skinflint restaurateurs don’t hire cut-rate chefs to prepare shoddy sauces and sinking souffles. What we need is a law requiring all cooks to be paid a good healthy wage.

Sound strange? It’s the same idea as the “prevailing wage” laws enacted to cover construction workers in several communities surrounding San Francisco. The laws require builders of larger projects to pay at least the prevailing wage as determined by the state Department of Industrial Relations, which in practice means almost as much as union workers get. The rationale is that cheaper labor makes for accidents and unsafe buildings.

Prevailing wage laws aren’t new. Federal and state laws often require prevailing wages on government projects, which is one reason such projects are so costly. Minimum wage laws are old hat too.

But prevailing wage laws for private projects are an odd new wrinkle adopted to cover unincorporated areas of Contra Costa and San Mateo counties, and by the municipalities of South San Francisco, San Bruno and Belmont. These laws appear to be the only ones of their kind in the nation. Terrified that they might spread, the U.S. Chamber of Commerce and the California Manufacturers Assn. have singled out the Contra Costa ordinance for legal attack.

Most of us like high wages. Indeed, the average worker had a terrible time in the 1980s; we coped with global competition by reducing our workers’ standard of living, selling assets and borrowing. We need incentives to invest, retrain and focus on the future.

So why not start with prevailing wage legislation? It’s not clear, in fact, why the Bay Area laws stop with the construction trades.

Nurses, for example, make life-and-death decisions daily. Nor is some prevailing wage mandated for school-bus drivers, to whom we entrust our children’s safety. Dentists, security guards, cabbies, circus acrobats and others whose incompetence could cause havoc are similarly unprotected. The marketplace determines their pay.

But safety isn’t the only argument for prevailing wage laws. George Feere, business manager of the Contra Costa Building and Construction Trades Council, says that lower wages and benefits for construction workers strain local services and that higher wages would have a positive trickle-down effect.

Yet there’s no talk of making Taco Bell pay $25 an hour plus dental benefits. As for trickle-down, it might be valid if those who pay for prevailing wages--the general consumer--didn’t make, on average, less money than the workers receiving them.

California manufacturing workers averaged $11.61 an hour excluding benefits last October (the latest figures available). A 1989 study for the Contra Costa County Board of Supervisors found that prevailing construction wages in the county were $25.86 including benefits. Non-union workers hired to modernize the USS-Posco steel mill in Pittsburg got $11.43.

Another oddity is that all but two of the laws exempt residential construction. (South San Francisco and San Bruno cover residential developments of more than four units.) Why should people at home be subjected to the terrors of shoddy construction by cheap labor? Shouldn’t the law intercede?

The answer, I suspect, is that home buyers would mutiny over the higher costs, and they count at the polls.

The most coherent argument for prevailing wages comes from UC Berkeley economist Bill Dickens, who conducted a union-sponsored study of the issue. For Dickens, the key is that large, non-union construction projects bring together a large group of transient workers for a singularly hazardous activity on a job-by-job basis.

With no roots in the community and vastly lower wages than union workers get, the migrant construction workers impose a huge burden on the host community, which in effect subsidizes the builder by assuming that cost, Dickens says. In one quiet town, he found, crime soared with the arrival of the transient workers.

Prevailing wage laws persuade builders to hire union workers, who are more productive, live locally and have health benefits, Dickens says.

Dickens’ argument depends on the notion that builders don’t realize their savings are ephemeral, because union workers are so much more productive. If he’s wrong, a cheaper solution for society would be to tax away enough of the savings to cover the added social costs. Or, make builders provide health insurance, housing, etc.

Besides, prevailing wage laws have social costs too. These include higher unemployment, misallocation of resources and retarded growth. Says University of Chicago economist Robert Topel: “You’re taxing everybody to pay for this thing.”

He says that buyers of big projects are perfectly capable of making sure they get good construction and that it’s silly to assume builders act against their own interests in hiring cheaper labor.

The U.S. Chamber of Commerce is challenging the Contra Costa law in U.S. District Court in San Francisco, claiming that it unconstitutionally attempts to supersede the National Labor Relations and Employees Retirement Income Security acts. Three other business groups, including the California Manufacturers Assn., meanwhile are appealing a Contra Costa Superior Court ruling that upheld the same law. The plaintiffs claim that state law preempts county governments from mandating terms and conditions of employment.

Aside from the legalities, Topel says the new laws don’t make sense: “We don’t guarantee quality of work by enforcing high wages.”