Extant literature on prevailing wage (PW) laws notes that such laws generate societal benefits in the form of upward pressure on wages and benefits for non-union workers, as well as protection of local construction industries (workers, workers’ families, and employers alike) from the wage and benefit erosion that could happen if external competition entered the local market from lower-wage geographies and persistently undercut local firms. On this companion website for a recently released Cornell ILR Worker Institute & Buffalo Co-Lab joint report illustrates how, beyond these and related benefits, PW laws might make union construction labor more cost effective than non-union construction labor for PW jobs. Such an outcome could have significant upsides. Among other things, supporting union firms: increases those firms’ ability to take on, train, and pay new apprentices, thereby paving the way for a future experienced, high-quality workforce; gives those firms more capacity to hire additional qualified workers at journey and provisional levels, thereby putting upward pressure on union density in the industry; and, arguably, puts pressure on non-union firms to raise wages and benefits to levels that are more competitive with their union counterparts. In other words, insofar as PW laws contribute to stronger unions and better compensated workers, they are “high road” policies that can lead to greater shared prosperity in local economies over time.

On this website, users will find a PDF version of the Worker Institute/Buffalo Co-Lab report, Building Responsible Projects in New York City: Assessing the Impact of Prevailing Wage Benefits on Workers, Contractors, and the New York City Economy, and an accompanying calculator that can be used to estimate labor cost differences between a hypothetical union and a hypothetical non-union construction firm, assuming that both firms require the same number of labor hours, by trade, to complete a given PW job.

Project Summary

Prevailing wage requirements in New York have typically been associated with public construction projects. This changed with the passage of New York State (NYS) Labor Law Section 224-a, which expanded the range of projects to include predominantly private-funded projects where public funds account for as little as 30% of total project costs.

PW requirements mandate that all contractors—local or non-local, union or non-union—adhere to a wage floor rate that is set according to local prevailing market conditions.[1] In practice, in New York City, union pay schedules are used to set prevailing wage rates. New York City prevailing wage laws are therefore important mechanisms for requiring non-union contractors to offer closer to union-level compensation packages. In fact, one aim of prevailing wage laws, as shown in the figure below, is to level the playing field for bidders, such that labor costs are essentially “canceled out” of competitive bids (i.e., the laws are intended to essentially equalize labor costs for all firms).[2]

That being said, as argued in the Cornell ILR School report on which this summary is based,[3] there are at least two reasons why labor costs are not wholly canceled out for different bidders. First, although prevailing wage laws might equalize wage and benefits costs for all bidders,[4] they do not equalize certain tax and insurance expenses that are dependent on wage and benefits costs. Consider, specifically, workers’ compensation insurance. The cost of a firm’s workers’ compensation policy is a function of the firm’s qualified payroll, as well as factors like its level of experience and safety history. Thus, even if two firms expect to employ the same number of tradespersons for the same number of hours for a prevailing wage-covered job, their workers’ compensation costs can differ for at least two reasons: (1) one firm is safer and more experienced than its competitor; and/or (2) one firm’s qualified payroll is lower than that of its competitor.

With respect to the former, empirical research regularly finds that union firms tend to be safer and employ more experienced tradespeople than non-union firms.[5] Concerning the latter, the value of group pension and welfare funds generally do not count as qualified payroll in workers’ compensation policy calculations. As such, all else being equal, a firm that provides a larger percentage of its workers with group benefits like health coverage and retirement plans will tend to have lower workers’ compensation costs than a firm which provides group benefits to fewer of its workers.[6] It follows that, due to a combination of, on balance, safer work histories, greater experience, and near-universal benefits provision, under existing New York State and New York City prevailing wage laws, union firms should face lower total labor costs than their non-union counterparts for the same number of hours worked in a given trade.

The second major reason why prevailing wage laws might not wholly cancel out labor costs for all bidders is that some – especially union – firms sponsor apprenticeship programs that allow them to assign meaningful shares of work to apprentices, who – even under prevailing wage laws – are generally compensated at lower hourly rates than their fully qualified colleagues. In New York State and City, as in the rest of the nation, the overwhelming majority of apprenticeship programs are union made and union run.[7] Thus, under prevailing wage laws, unions tend to have ample access to a lower cost supply of labor (i.e., apprentices) than their non-union competitors.

In the Cornell University ILR School report, researchers draw on labor hour estimates for constructing a large (10-story, 150,000-square-foot) building in New York City, as well as current New York City prevailing wage schedules for four trades—High Rise Carpenters, Cement and Concrete Laborers, Cement Masons, and Metallic Lathers—to compute the hypothetical labor costs for a union and non-union firm under five modeled scenarios. The scenarios range from overly conservative – whereby no apprentice labor is available to either firm and both firms are equally safe and experienced – to more relaxed – wherein the union bidder uses apprentice labor at empirically observable rates, the union firm is safer and more experienced than the non-union firm at a rate observed in recent research, and the non-union firm provides group benefits to a below-average share of their workers.

In the median, or arguably most realistic scenario, the report’s authors find:

• union firm’s labor costs are likely to be around 13% less than the corresponding costs to the non-union firm due just to the two variables discussed above: apprenticeship labor and savings on workers’ compensation insurance payments.[8]

The major takeaway of the Cornell report, then, is that prevailing wage laws might make union construction labor more cost effective than non-union construction labor for Prevailing wage jobs. Such an outcome could have significant upsides. Among other things, supporting union firms:

• increases firms’ ability to take on, train, and pay new apprentices, thereby paving the way for a future experienced, high-quality workforce;
• gives firms more capacity to hire additional qualified workers at journey and provisional levels, thereby putting upward pressure on union density in the industry; and, arguably,
• puts pressure on non-union firms to raise wages and benefits to levels that are more competitive with their union counterparts. In other words, prevailing wage laws can lead to greater shared prosperity in local economies over time.[9]

Although other costing elements (e.g., materials, technology, profits, etc.) might not be characterized by the same sort of “union advantage” observed in labor costs, the results of this research show that the union labor cost savings can be quite substantial—savings may lie somewhere between $600,000 and $800,000. Factoring in additional trades, those figures could easily climb north of $1 million.

Based on these observations, why might union bidders lose prevailing wage projects to what should be higher-labor-cost non-union firms? The authors identified at least three non-exhaustive possible reasons that the ostensible “union advantage” on prevailing wage projects might go unrealized:

1. Substantial differences in materials, technology, profit, and other non-labor costs.[10]
2. Non-union practices of underbidding that lead to cost overruns. [11]
3. Misclassification of workers by non-union bidders.[12]

With greater enforcement will come greater opportunity for prevailing wage laws to realize their potential, by translating their built-in “union advantage” into higher union density, higher wages, more comprehensive benefits, and greater shared prosperity throughout New York’s construction industry and regional economy.

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Notes

[1] These prevailing wage rates are usually meaningfully higher than the local minimum wage and greater than average non-union rates.

[2] Manzo, F. (2015). Prevailing wage laws, contractor profits, and the economic pie. Illinois Economic Policy Institute. http://www.faircontracting.org/wp-content/uploads/2015/01/ILEPI-Economic-Commentary-PWLs-Profits-and-Redistribution.pdf

[3] Weaver, R. and Brady, A. (2023). Building Responsible Projects in New York City: Assessing the Impact of Prevailing Wage Benefits on Workers, Contractors, and the New York City Economy. Cornell University: ILR School.  https://ecommons.cornell.edu/handle/1813/113403

[4] Assuming that each bidder requires roughly the same number of labor hours, by trade, to complete a covered project.

[5] Manzo, F., Jekot, M., & Bruno, R. (2021). The impact of unions on construction worksite health and safety:

Evidence from OSHA inspections. Illinois Economic Policy Institute.

[6] In New York State and New York City, as in most of the nation,[6] union construction workers almost always receive group health and welfare benefits through their employers via collective bargaining agreements (CBAs), whereas non-union workers tend to receive these employer-provided benefits at significantly lower rates.

[7] Fuchs, E.R., Warren, D., & Bayer, K. (2014). Expanding opportunity for middle class jobs in New York City: Minority youth employment in the building and construction trades. Columbia School of International and Public Affairs.; Manzo, F., & Thorson, E. (2021). Union apprenticeships: The bachelor’s degrees of the construction industry.Data for the United States, 2010-2020. Illinois Economic Policy Institute. https://illinoisepi.files.wordpress.com/2021/09/ilepi-union-apprentices-equal-college-degrees-final.pdf

[8] Actual savings could be even larger when other payroll taxes, quality, and related measures are considered.

[9] E.g., Wright & Rogers (2011); Weaver (2021).

[10] Manzo et al. (2021); also see: Manzo, F., Petrucci, L., & Bruno, R. (2022). The union advantage during the construction labor shortage: Evidence from surveys of Associated General Contractors of America member firms. Illinois Economic Policy Institute. Given that empirical evidence consistently finds that union firms produce higher quality, potentially more durable projects, one might expect that union firms rely on higher-cost materials, tools, and technologies.

[11] Evidence for such practices could take the form of cost overruns and (potentially multiple) change order requests throughout a project’s life cycle. Non-union firms regularly underbid prevailing wage projects through, for instance, underestimating the number of labor hours needed for the work.

[12] NYC Comptroller. (n.d.-a). If, for example, some non-union firms hire workers under the title of Laborer (for which the current PW is $44.50) but then assign that employee to perform the work of a Cement Mason (for which the current PW is $53.77), then that firm is effectively cheating the prevailing wage law—and their employee—to the tune of at least $9.27 per hour worked.