06-12-12 CC Items Rec'd at Mtg. PREVAILING WAGE MAKES SENSE ARROYO GRANDE
Prevailing Wage Stimulates Local Economies
When local residents have access to fair-paying jobs,they are more likely to stay in these local communities,buy homes,
vehicles,consumables and support other local businesses.Their property and sales taxes buoy these communities, in a
cycle of local reinvestment.
Prevailing Wage Pulls Its Own Weight
Employers paying prevailing rates are more likely to pay into health care,retirement and training funds on behalf of their
employees as well, lessening the burden on local social services. Consistency in employment and training leads to
confidence in a career path,rather than just another job.Plumbers and electricians provide state-approved training in
Arroyo Grande;councilmembers are invited to check out these facilities and curricula.
Prevailing Wage Raises The Bar On Quality
Naturally,higher wages attract the best workers and the best contracting bidders. Cutting wages leads to cutting corners,
dragging quality and safety into a dangerous downward race. This race ultimately ends in a shrinking contractor bidding
pool(raising costs), construction defects and defaults to be absorbed by affected cities.
Prevailing Wage Makes Sense For Charter Cities
Nearly 60 percent of current charter cities in California have simply adopted state prevailing wage laws.Another 10%
have made only minor adjustments; it only makes sense not to reinvent that wheel.Despite claims to the contrary,none of
the other 30% can conclusively demonstrate savings in eliminating prevailing rates.The City of Vista is currently fighting
this issue in court;there is no reason for other cities to take it on now.
Prevailing Wage Honors History Responsibly
More than 80 years ago, Congressman Robert Bacon—a Republican from New York—illustrated his support for
government payment of prevailing wages as follows:
The Government is engaged in building in my district a Veteran's Bureau hospital.Bids were asked for. Several
New York contractors bid,and in their bids, of course,they had to take into consideration the high labor standards
prevailing in the State of New York... The bid,however,was let to a firm from Alabama who had brought some
thousand non-union laborers from Alabama into Long Island,New York, into my district.They were herded onto
this job,they were housed in shacks,they were paid a very low wage, and the work proceeded... It seemed to me
that the federal Government should not engage in construction work in any state and undermine the labor
conditions and the labor wages paid in that State... The least the federal Government can do is comply with local
standards of wages and labor prevailing in the locality where the building construction is to take place.
Republican President Herbert Hoover signed the Davis-Bacon Act into law in 1931,as the United States climbed out of
the Great Depression.
Parallels to the current market are obvious.As stewards of the public trust, local government should not undercut local
rates and conditions. Cutting prevailing wage is the epitome of"penny wise,pound foolish."Differences in reduced
wages end up in the pockets of unscrupulous contractors,not the local treasury. There should instead be renewed attention
on certified payroll compliance,to assure that proper wages are paid.
Prevailing wage makes sense for Arroyo Grande today,too.
STUDIES OF THE EFFECTS, OF
PREVAILING WAGE LAWS
Prevailing Wages and Government Contract Costs: A Review of the Research Nooshin Mahalia,
Economic Policy Institute,2008
Findings: A growing body of economic studies finds that prevailing wage regulations do not increase
government contracting costs. These studies also show that prevailing wage laws provide social benefits
from higher wages and better workplace safety, increase government revenues, and elevate worker skills
in the construction industry.
Link: http://www.epi.org/publications/entry/bp2 15
Quality Construction—Strong Communities: The Effect of Prevailing Wage on the Construction
Industry in Iowa,Peter Philips, Professor of Economics,University of Utah,2006
Findings: Prevailing wage regulations increase training,productivity and wages. Prevailing wages do not
raise costs.Prevailing wage regulations encourage quality construction.In the 31 prevailing wage law
states,there is a higher rate of apprenticeship training. Without prevailing wage requirements,nonunion
contractors cut their bids by jettisoning training costs. After Kansas' repeal, apprenticeship training fell
38 percent.
Link: http://www.smacna.org/legislative/quality-construction.pdf
Lessons for post-Katrina Reconstruction~Peter Philips, Professor of Economics,University of Utah,
2005
Findings: In the case of the Northridge earthquake,there were two benefits from hiring more skilled
workers within Davis-Bacon rules.First,their higher productivity per hour largely offsets any difference
in labor cost per hour. Second,they can finish the rebuilding more-quickly. It is penny-wise and pound-
foolish to suspend the act for Gulf Coast reconstruction.
Link: www.epi.org/publications/entry/bp166/
Wages,Productivity and Highway Construction Costs,Updated Analysis Construction Labor
Research Council,2004
Findings: A study of highways built from 1994 through 2002 showed that when workers' skills and
productivity justify higher wage rates,highways can be built at a lower cost per mile than when lower
skilled workers are employed.High wage states showed a$30,000 per mile savings in construction costs
compared to low-wage states.
Link: www.buildri.orbg/contentmar/showdetails.php/id/2004
The Adverse Economic Impact from Repeal of the Prevailing Wage Law in Missouri, Michael
Kelsay,L.Randall Way,Kelly D.Pinkham, Department of Economics,University of Missouri,Kansas
City,2004
Findings:The repeal of the prevailing wage law would cost the residents of Missouri and their
families between$294.4 million and$356.0 million annually in lost income.The repeal of the
prevailing wage law would cost the State of Missouri between$5.7 million and$6.9 million in lost
sales tax collections annually.The repeal of the prevailing wage law would cost the State of
Missouri between$17.7 and$21.4 million annually in lost income tax revenue.
Link: www.srnacna.or lislative missouri.pdf
Four Biases and a Funeral,Michigan's Prevailing Wage Law, Peter Philips,Professor of Economics,
University of Utah, 2001
Findings: When you eliminate prevailing wages,you eliminate training;you cut capital investment;you
cut wages, and the labor force becomes younger, less experienced, less formally educated and more
reliant on non-citizens. In the 1980s, Colorado,Idaho,New Hampshire, Kansas and Louisiana all lost
construction jobs after repealing prevailing wage.
Link: http://w ww.faircontracting.org/PDFs/prevailing wane/fourbias.pdf
Do Higher Wages Raise Labor Costs?Bob Gasperow, Construction Labor Research Council,2001
Findings: A 14-year study of highway construction found that because of the payment of prevailing
wages,more skilled workers achieved a cost savings of$123,000 per mile. Skills and productivity,not
wage rates, are what finally determine actual costs. There is no basis to the claim that lower wage rates
result in lower construction costs.
Link: http://www.iiiffc.org/pdf/prev_wa2.e costs.pdf
Kentucky's Prevailing Wage Law,Its History,Purpose and Effect,Peter Philips,Ph.D.,Professor of
Economics,University of Utah, 1999
Findings: High wage rates, if they induce higher labor productivity, can actually reduce labor costs as a
percent of total costs.Low wage rates, if they mean a loss of skills,can result in higher labor costs as a
percent of total costs.A study of 6,000 school construction projects in the 1990s found no relationship
between prevailing wages and higher costs.
Link: www.prevailingwage.org/pdf/kentuckyprewage.pdf
The Effect of State Prevailing Wage Laws on Total Construction Costs,Mark Prus, Department of
Economics, SUNY,Cortland, 1996
Findings: There is no measurable cost difference between similar structures as a result of prevailing wage
requirements. Consequently,reforming or repealing these laws will not lead to the kinds of substantial
savings promised by proponents of repeal. Prevailing wage attracts workers with more experience and
training, increased productivity offsets the costs of higher wages.
Link: http://www.faircontracting.org/PDFs/prevailing wage/effects—davisbacon.pdf
•
•
Prevailing Wage Laws and the California Economy,Michael Reich,Professor,Institute of Industrial
Relations,University of California,Berkeley, 1996
Findings: Reducing prevailing wages, as the Wilson Administration proposed,would have greater,
harmful effects in California than in other states,would lower tax revenues,reduce productivity,reduce
worker training and job safety, and slow California's economic growth. Reducing prevailing wages would
cut sales and income tax revenue-to the state by a combined$800 million
Link: www.buiIdingc3.com/doc.asp?id=l 70
Losing Ground: Lessons from the Repeal of Nine"Little Davis-Bacon"Acts
Peter Philips, Garth Mangum,Norm Waitzman,Anne Yeagle, University of Utah, 1995
Findings: The repeal of prevailing wage laws resulted in lower wages for all construction workers. This
caused the government to lose substantial tax revenues. Cost overruns are a hidden cost of repealing
prevailing wage laws. Example: Utah's construction workers lost$58 million in income after prevailing
wage was repealed,resulting in a tax revenue loss to the state of$8.2 million.If the federal Davis-Bacon
Act were repealed, income tax collections would fall by at least$1 billion per year in real terms every
year for the foreseeable future. This is because construction wage levels would decline across all states
and—based on the experience of the nine repeal states—construction employment levels would not rise
enough to offset this revenue loss.
Link: http://www.faircontracting.org/PDFs/prevailing wage/Iosingground.pdf
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ECONOMIC, FISCAL AND SOCIAL
IMPACTS OF PREVAILING WAGE IN
SAN JOSE CALIFORNIA
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In the city of San Jose and the surrounding metropolitan area, the
construction industry carries considerable economic importance, • Over 5 years, estimated
employing more than 30,000 people each year. The NOVA Workforce
Investment Board described construction as a foundational occupation, increase I n count•y W l d e
creating the infrastructure necessary for the South Bay region to attract economic activity due to
and grow driving industries.' prevailing wage for City of
In this highly mobile industry, where paychecks depend on the weather San Jose buildings: •
and workers are employed only for the length of a construction contract, $164 million
industry and community have developed tools designed to ensure safety
and quality of work and toinduce positive economic impacts from major o Estimated increase in
construction projects. One such tool is prevailing wage on public works. local jobs: 1,510
Prevailing wage is an important economic development tool in the state o Estimated increase in
of California. Both the state and the federal government utilize prevailing local tax revenues:
wage policies which apply to taxpayer-funded public works projects
receiving state or federal funds.Many local governments in the state have $1.9 million
their own prevailing wage policies covering projects funded by local
taxpayers. The City of San Jose's prevailing wage policy was adopted in • • Increase i n local hiring on
1988; its statutory purpose is to ensure equitable and sufficient wages, libraries when prevailing
protect local job opportunities,and stimulate the local economy.
wage applies: 21%
This policy brief examines the economic,fiscal, and social impacts of San
Jose's prevailing wage policy by analyzing a hypothetical scenario: how • Miles driven daily by out-
would construction costs, tax revenues, overall economic activity, and of-town construction •
other relevant factors change if San Jose's public works projects were not
built under prevailing wage? workers: over 1 million
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This working paper is produced by Working Partnerships USA with funding from the Construction Employers'Association,
the Bay Area Chapter of the Sheet Metal and Air Conditioning Contractors' National Association, the Santa Clara Valley
Chapter of the National Electrical Contractors Association,and the Northern California Mechanical Contractors Association,
collectively representing over 500 construction contractors in the Santa Clara Valley and Northern California. Dr. Kevin
Duncan, Professor and Senior Economist at the Healy Center for Business and Economic Research, Colorado State
University-Pueblo,carried out the economic impact analysis'summarized on pages 3 to 7.Dr.Duncan's complete analysis is
provided as Appendix A to this brief.
P R E V A I L I N G W A G E I N SAN JOSE 2
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Economic Impacts
• Municipal building projects covered by a prevailing wage policy employ a higher proportion of
local contractors and local workers. Prevailing wage laws therefore help reduce the leakage of local
taxpayer dollars by directing public construction expenditures into the local economy.
• If prevailing wage coverage i's removed from a municipal building project,then roughly 6%of the
project's value leaks from the Santa Clara County economy.
• If prevailing wage had not applied to San Jose's 2007-2012 municipal building projects:
o Total economic activity in the County would have fallen by$164 million.
o 1,510 fewer local jobs would have been created in the County.
o In addition to construction,the economic sectors with the greatest job loss induced by the loss of
- prevailing wage include retail and food service(88 jobs)and health(57 jobs).
Fiscal Impacts
• If prevailing wage had not applied to San Jose's 2007-2012 municipal building projects:
o Reduced local contracting would have produced a$1.9 million drop in local property and sales
tax revenues for local governments within Santa Clara County.
• o The shift of income away from blue-collar construction workers to contractors/owners would
result in additional economy-wide impacts.For every cumulative$1 million shift upwards in
personal income,the net effect is a decrease in county economic activity of$34,000.
• The preponderance of studies over two'decades have found no impact of prevailing wages on total
construction costs.Rather,prevailing wages are believed to increase labor productivity on a project.
• Prevailing wage is a very low-cost economic development tool relative to other programs intended to
create jobs.The 1,510 additional jobs induced by prevailing wage on San Jose municipal projects
are equivalent to the total projected impact of the proposed Major League Soccer stadium.
Traffic and Environmental Impacts
• In 2008,non-local construction workers employed in Santa Clara County cumulatively drove over 1
million miles per day to and from work.If the work done by non-locals was instead performed by
locals with shorter commutes,then the estimated savings would be 123,619,000 miles per year.
• If a project is not covered by prevailing wage,then the shift towards a non-local construction
workforce induces excess commute miles,resulting in traffic congestion,less livable neighborhoods,
lower social cohesion and increased greenhouse gas emissions.
Social Impacts
• Public assistance costs:A typical non-union construction employee on a non-prevailing wage project
without health benefits would be eligible for$3,665 in public assistance.At prevailing wage,the same
worker would earn enough to support his or her family with no public assistance.
• Higher education:Prevailing wage also provides for employment of apprentices on public works.If
apprenticeship programs could no longer enroll students,then the result would be a loss of about
2,340 full-time student slots.This would be equivalent in scale to shutting down half of San Jose City
College.
• Diversity:Relative to the total construction workforce in Santa Clara County,joint apprenticeship
programs employ 1.4 times more women and 4.7 times more African-Americans.
PREVAILING WAGE I- N SAN JOSE 3
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• On the Mitchell Park Library in Palo Alto,built without prevailing wage,11.7%of the
total project value went to local contractors.
• On the similarly-sized Gilroy Public Library,built with prevailing wage,71.2%of the total
project value went to local contractors.
• Economic modeling of these individual projects shows a loss of 22 local jobs if the Gilroy
library had not been built under,prevailing wage.The following sections will extend this
analysis from a single case study to all municipal building projects in San Jose.
Two recent library projects in Santa Clara tool was run on the Gilroy and Mitchell Park
County provide a paired case study of the libraries. The Gilroy analysis evaluates the
impacts of prevailing wage. impact of the counterfactual scenario in which
the library was not built under a prevailing wage
The Gilroy Public Library and the Mitchell Park policy. The Palo Alto analysis evaluates the
Library and Community Center (in Palo Alto) impact of the counterfactual scenario in which
are about the same size and were bid just six the library was built under a prevailing wage
weeks apart. However, the Gilroy library was policy.
built under a prevailing wage policy, while the
Palo Alto library was not, If the Gilroy Public Library had been built
without prevailing wage, the total economic
The Gilroy project, at 53,000 square feet, has a impact would be a$2.4 million decrease in local
contract value of about$17 million and a square economic activity and the loss of 22 local jobs,
foot cost of $326. The Palo Alto project, at including 17 direct 'construction jobs and 5
56,332 square feet,has a contract value of about indirect jobs in retail,services,and other sectors
$24 million and a square foot cost of $430. attributable to lost spending from local
Consequently, there is no obvious support for construction workers. Fiscal impact would be a
the hypothesis that prevailing wages increase net decline of$27,500 in sales and property tax
project costs. revenues for local governments within the
county.
The case studies do suggest that prevailing wage
increased local contracting. In Gilroy, 18 of 33 In the reverse scenario, if the Mitchell Park
listed subcontractors and the general contractor Library had been built with prevailing wage,the
were based in Santa Clara County, totaling total economic impact would be a $3.3 million
71.2% of the total project value which went to increase in local economic activity and 31 more
local contractors. In Palo Alto, only one of the local jobs, with a fiscal impact of $38,800
33 listed subcontractors was based in Santa Clara additional tax revenues.
County,totaling 11,7% of the total project value
which went to local contractors, The maps on the following page show the
dispersion of subcontractor work for the two
For the purposes of this case study,an economic projects.
impact analysis using the IMPLAN modeling
1
Where Does the Money Go?
Geographic Dispersion of Local Funds Spent for Library Construction
Dispersion of Funds from Palo Alto Library (W/Out Prevailing Wage)
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eg°4 ///4 ,ar;, gwr y Percent of
iP p e//. ins ° ` rz' '.
J rca•----- J !” �f/7de - ' local:'fun, „
•z Raw Valle o Fairfield 6 t Q 0, �1 - - }.
C �P�.! a c „,�u
'>;', :, • ' ar>!0 e' 1010 -;fir going:to local•1,,,,..,Lrl, ' n ?4al .r-# ff d ,contracto:rs•
'v„,,"�.,nFranc!
y ” %1SA 'u"a d, , Columbia,PA
- k '� :s , _ 0,, , , to Nis-La. - d f _ :_ 11.'8 .. •
�,'�t, •fan Fanci Oakland PM SA s ° "` —
'
•
'iis c jT-.ajJ ` DyjC ,m,da'!'4,-,,;,: 7rx:Y - -�''+ ' - , °
I�s pf. ,��1-ni_i F°''•�° oNNY7 . ,. ;'' Od0,4t0'' . ,
"t"�°t•' Ors,. ,''' .`.-, ." :n,ITc f (/ t" .
Hlk•,�r:r,�-gat`,: `Mode.'Sto'}- ;
'' ,t: T-.4'.=+h; ;r'` i. a San Jose ______,,,,,,4„,..,,,.,, •Ad
':";:i" ' ' ";� 5 10 Million
'-2..o a a n,;',.,,-"=, f -,ri lnsk PAts` "t` Mere_ $ '$
�r <<^',..•.5,:.:.:O'l t�2'' ./�l:. - M.• s;7 $3-$5 Million
`s fA'' `'�;.: .+,w" ." , ,-,- i,./1.. At', C $1 $3 Million
w' ;.,,,,,k1...:44--0,5, ,,,4.g-2` '` �1:;' r ;"414' Under$1 Million
0 ml 20 40 69 90,
Dispersion of Funds from Gilroy Library (With Prevailing Wage)
V/Ji / `C 7);"' O I l ibl f'!
ck� tv• �,��4
/����' 'Aim%n,. Sacramento ° / 1 ��
, /
• c:',..✓/ a1 Jf f J bona„ PMSA /J/ /J
Percent of %•,`n�,,, -,,t'/ ° °� :�///
. `;'r',':�'' r /' wallela-Falrtleld A l 1 F 0 fdA
focal funds - '' J/�y °� P"S"0,.... /z/...,... 7./ /7/
//,/,/,,./,'
gong to�locat 'S - Faand /t"� WO,l''t v PMSA 4-r "". -- a ,'San,Bernadino° :,
contractors, ��` '-��.=.-• R d,',�,�.' ,°` `°�°"%""
a, ..d SansFrancf ,,try,r?iaSa"i 1 i'/ e t■ ,f��� 'ti`�<�
71.2% Sri'�+: ti,`.;.. ;':-`' .!,ITI,d,_; .� '7 oM, , ,, . .,t--:�-�
..-
; ��r
-r
-• 'z .:.�,; ode o ' , T_ .•. n‘ -- i~r s1Pacfic ,,r S • } / J i.
,:y :a ; f1 e $5-$10 Million,. ,' ' -' i' \;,-
,3',.', 1 o :-'- c-- ;t-t 34,, te.rC'.'°Y-- 0 $3-$5 Million ro4. ,
` r':,, •.1, ,,p.ri C ' ir�:'; %,5 x'i'1,• <a.. �I��• $1 -$3 Million:
:•.'; ,\t.'r{. ‘ ,;P;er\''�r�1s`,- ,,.:,;:x,;e,: ones M• n Under$1 Million
�
no ��
40 O 80� 80
Figure 1.Maps prepared by Scott Littlehale.
•
•
PREVAILING WAGE IN SAN JOSE 5
:;L$�y�-,_..ax.rn�+cr.h;...-..,x�•,:t<srr-,.�e»+a;Ha'xry+4y'„<s,>sys.*n;-.,�.�,,..+;s•-<:nr+-..;,-.7 o.. :,yv,.,Sa.,-,r.�:+*^ ^yr„w.xa>,y;.�,�,+..�,.e.-z�-k';".,fix a,��" C'+^i�r�.nr��,�t,>a'7"c.�•baa�...-bZ;+„6.e'.:�
[•NIP� t-fr5F IFICAILING WAGE:,i4.74. E.SAN JOSE-.,AETRO 'EGI.O'N���i }•z ��'�1�;i3't µ:
«hsafibx..+Fd:.nu+ti4d e>�.x=3�:.�1s.ir..xr..,wwa°ue�.:...,�.:.,....w:a.•s:.,,.w:.;,,.w�,•a.,+:.— ra.av,�,w a,: rWC.. .s.S ..�wt,3.h ',. t :1.�-'✓3J.5:4oy�.:s.�._::��:x.+^.tt.`'..;..1a�:rs
Moving from case studies to a region-wide • Construction Costs
perspective, the remainder of this brief focuses • Economic and Fiscal Impact Analysis
on the economic, social, and fiscal impacts of • Relative Importance to Economic
prevailing wage in the San Jose metropolitan Development
region. • The Bigger Picture
• Public Assistance Costs
• The impact analysis includes the following • Education and Training Opportunities
components:
• Workforce Diversity
• • Traffic and Environmental Impacts
.rs,•,r r,;,�,ra c:•ar.,;.�.:.�y'hx.yvs»,�,r:,rrea•aa^.,-c? 3Y=^,,,:'"•*'n'�dir :9tt"3}7�;'LT�iW;'"�9}c�Jt'. 'cA'?f;�'� '1"»?�r"�. - 1`},',•5Fy3'�':'+�^."4"e'�,,,+pyy .yar,.$�,±.:ln'>;Gc',A'�
�r- ,. �,� _ yywwg .�,t 4 .,5+,•, r�"J r?T,sr;^„�E'TM”, ">`'-„•,a
B •fy �;Y. µ 1�'+�rK tj 1i.,.:1 F.1r1�"> x .;'7'� mod; ,i'P" 1' N.
k ,���NSTRUCTION COSTS° �� � ,�' . � :, - '�f � ” .
..>•...rah :�rrM-4.a::,.•.a..mc� -,...:.;..e:ati>_�...,._..:.�`::.:....:. �r,. ` `N;���x ''`,,,..,uy0 ,:.a,`. - '"•'•�''y
• The preponderance of research shows no significant impact of prevailing wage on total
construction costs.
Standard economic theory suggests that as wages • A recent study of five South Bay and Peninsula
rise, less labor will be used on a project, either cities3 compared public works projects in cities
through an increase in labor productivity (via a with and without prevailing wage laws. The
higher-skilled or more motivated workforce) or study failed to find any effect of prevailing wage
through greater use of labor-saving equipment. on the total number of bidders,bids by union or
Prevailing wage policy,can thus be expected to non-union contractors, or on the likelihood of
affect the entire construction cost of a project, non-union contractors submitting the winning
not solely the hourly labor cost. bid.
•
Studies which examine the effect of prevailing Furthermore, it found no impact of prevailing
• wage on total construction costs, using the wage law on the difference between the winning
statistical method of regression analysis, have (low) bid and either the median bid or the
overwhelmingly found no significant cost effect engineer's initial estimate. These findings
of prevailing wage. Multiple studies using strongly suggest that cities with prevailing wage
different data sets, project types, and-different laws did not experience less competitive bidding
statistical tests have nearly all produced the same or inflated bid prices compared to cities without
result: prevailing wage laws are not associated • prevailing wage.
with higher construction costs?
.«real,;rx^ rrc*� :r^••1srt;, ..c^c�.',.•.�-m-:E��u�1? .st�c'c,t•+t_,> ;ti"' ��xl�1,� ar;i :ry;atii S 1t S -Yy,Y•y:-
.'� t St'• �Fyy p. � T ,r�.J•�.^.� x;�,,,�_*'s-• ..r^",�1't?"'. 1
".RYA: - s,.r - Kr --:*..9 'aa" "'t .. , t�i .�'` ;,s t't,. ,-..,;•.�,M
- a' - 117 �:'1•.,, �,_,`{';,Yi�`�'sT 'c,,?�_'t:!”'�",i :1':'"l''xi S:�f'��=��.z',rs�s s
1 �CCJNQly1 AN FlSC L�lIv1PACT ANALYSJS�� � � �-�. �,1< ' ��
:. ..... ........ r�o.,.1 a;_�.l s� .six,,,, ..>:...wl..�i,• • w e_ t�..ci}:<.. '.,u...s :� `;.w..,.st:ia.ik4sa4a•..�,ru.^'. sd"su:.'3%u.ina<L� .a.c, �:a�sla..a',.Ssu'�`o`...x:..[6'..:i,.cStun4lz'"�
• Roughly 6%of the value of a library or similar project leaks from the Santa Clara County
economy if projects are not completed under prevailing wage policies.
• If the City of San Jose's major municipal buildings from 2007-2012 were not built under
prevailing wage,then major economic impacts would include reduction in total economic
activity of$164 million,net loss of 1,510 local jobs,and loss in local property and sales tax
revenues of$1.9 million.
• In addition to construction,the economic sectors with the greatest job loss induced by the
loss of prevailing wage include retail and food service (88 jobs) and health (57 jobs).
Residential property values would also decline due to reduced economic activity. "
•
1
P R E V A I L I N G W A G E I N SAN JOSE 6
Moving from case studies to a region-wide The economic impact represents about 6% of
perspective, this study analyzes the economic these projects' combined value. This provides a
impacts of prevailing wage by modeling an rule of thumb: about 6% of the value of a library
alternative scenario:what would have happened or similar project leaks from the Santa Clara
in recent years if no San Jose municipal County economy if projects are not completed
prevailing wage had been in place? under prevailing wage policies.
The economic impact analysis performed for This initial analysis of libraries examined only a
this study uses the IMPLAN software and local small subset of the City of San Jose's public
data to estimate the effect of municipal works.To better illustrate the impact of the City
prevailing wage laws on the local economy. of San Jose's prevailing wage policy on the Santa
IMPLAN provides sophisticated modeling Clara economy, municipal building projects
which is widely used in economic impact 'from the city's 2007-2012 Capital Improvement
analysis; for example, it is used by the federal Program(CIP)budget are used.4
Bureau of Economic Analysis, several
departments of the State of California,.the San Table 1 shows detailed results of the economic
Jose Convention and Visitors Bureau, and the analysis on the 2007:2012 CIP projects. Major
Santa Clara Valley Transportation Authority. impacts if these projects had not been built
For this study specifically,IMPLAN was used to under prevailing wage policy include:
estimate the impact of a change in labor income • Reduction in total economic activity of$164
on the level of economic activity, employment, million,or about 0.1%of county GDP.
and local taxes within Santa Clara County. • Net loss'of 1,510 jobs in Santa Clara County,
or about 0.2% of total county employment.
Examining the 16 library projects built between This includes a direct impact of 1,155 fewer
2003 and 2009,with total costs in 2010 dollars of construction jobs and indirect impacts of
about $177 million, the IMPLAN model 355 fewer jobs in other sectors.
provides a total net economic impact of – • Total loss in local property and sales tax
$11,017,000, that is, a reduction in economic revenues of$1.9 million.
activity of more than $11 million. The net • Decrease in sales taxes collected by the City
employment impact is a loss of 103 local jobs. of San Jose of$181,000.
•
Table 1: Impact on the Santa Clara County Economy If San Jose's 2007-2012
. Capital Improvement Projects Were Built Without Prevailing Wage.
Includes only the impact from municipal building projects,comprising 60% of the total CIP.
Sources: IMPLAN,Quarterly Census of Employment and Wages.
,Econo xc Inn r a Gate o �. eonq ac et;x Oa o MST)
+t _ ° .'. .. �. . ,,. "",`,;� �or,.
Direct Income Decrease in the County: –$106,897,000
—
Induced Decrease in Spending in the County: –$56,621,000
Combined Economic Impact: –$163,518,000
Direct Job Loss: –1,155 Construction Jobs
Secondary Job Loss: –355 Local Retail and Service Sector Jobs
Total Employment Decrease: –1,510 Jobs in the County
County Property Tax Revenue Decrease: –$1,483,000
County Sales Tax Revenue Decrease: –$421,000
Total County Tax Revenue Decrease: . –$1,904,000 •
Reduction in City of San Jose Sales Tax Revenue: -$181,000
r
P R E V A I L I N G W A G E I N SAN JOSE 7
The economic impact of repealing the prevailing approximately$8.9 million and a decrease in
wage standard would be spread across the local employment of about 57 workers.
economy,-with industries not directly related to • The broad food service and retail sectors
construction experiencing substantial induced would experience a decrease in revenue of
impacts: approximately $6.7 million and an
• The reduction in economic activity would employment decrease of about 88 workers.
decrease home values in the county. .
1 • The health care sector in the county would . Additional impacts to specific industries within
experience a decrease in revenue of Santa Clara County are shown in Table 2.
Table 2: Im p act on Industry-Level Revenue and Employment Source:IMPLAN
3
1
47Santa M County Industry �''°
a
i � *vet*Loss e o 0 0
.'1'x.te,i,�'N ,t rk;, ',r ,. 1', „,,;,.. {t`, .:,,,';„,«;" i;• C „"v; r�,�E,' 4' ,:F,..- hyp 01` try ,f Asti - ,,=',4.
Total —$56,621,017 —355
_
Imputed rental activity for owner-occupied dwellings —$8,877,570 n/a
[indicates reduction in home values]
Real estate establishments —$4,119,799 —23
j Private hospitals —$3,914,528 —19
Offices of physicians&dentists • —$3,405,486 —23
Food services and drinking places —$2,963,211 —42
Wholesale trade businesses —$2,560,573 —8'
Non-depository credit intermediation arid related institutions —$1,584,886 —2
Monetary authorities and depository credit institutions =$1,544,013 —5
• Telecommunications —$1,388,240 —3
Private junior colleges,colleges,universities —$1,366,550 • —11
Legal services —$1,043,742 —4
Retail Stores-Food and beverage —$1,018,925 —13
Electric power generation-transmission —$913,723 —1
Medical and diagnostic labs and outpatient analysis —$888,802 —5
Other state and local government enterprises - —$817,404 —3 •
Insurance carriers —$786,213 —2
Retail Nonstores-Direct and electronics —$770,220 —4
Securities,commodity contracts,investments —$764,162 —9
Nursing and residential care facilities —$688,578 —10
Retail Stores-General merchandise —$637,519 —10
Retail Stores-Motor vehicle and parts —$536,467 —6•
Retail Stores-Clothing and clothing accessories —$528,399 —8
Services to buildings and dwellings • —$491,450 —7
Religious organizations —$467,923 - —3
Data processing,hosting,ISP,web search providers —$449,606 • . —1
Amusement parks,arcades,and gambling industries —$446,390 —4
Funds,trusts,.and other financial vehicles —$440,862 —1
Automotive repair and maintenance, except car sales —$403,455 • —4
i Other personal services —$374,769 —1
Retail Stores-Health and personal care —$368,636 —5
J
P R E V A I L I N G W A G E I N SAN JOSE 8
REC.ATRI,Or:5 TANCE T �-ECONOM f5EVEL� ,P' ENT , F� _1, - rs r, s:.7, . a 7
..,<:.cvessx ...dr... .+.„m.m„mb...v.....i. .a+c.§s:,._..ya ,...,.w.v+...�ezv.,�....�.a-w.t. ,sa �sysYi:SaxLisvw �,r £s..• ...'i�w..::f:ESSvw`"�i:. ^trk :SSl;
• Had prevailing wage not applied to San Jose's 2007-2012 municipal building projects,
1,510 fewer local jobs would have been created in the County,representing a 0.2%
reduction in total employment. •
• The jobs induced by prevailing wage on these projects are equivalent to 80%of all local
jobs at Adobe Systems,or to the total jobs that would be induced by the proposed Major
League Soccer Stadium sought by San Jose.
• The shift of income away from blue-collar construction workers to contractors/owners
would result in additional economy-wide impacts.For every cumulative$1 million shift
upwards in personal income,county economic activity decreases by$34,000.
As discussed in the previous section,the absence economic multipliers indicate that• inducing
of prevailing wage coverage for municipal 1,510 jobs in the state would require increased
building projects from the City of San Jose's public sector output of$105,604,000.9
2007-2012 Capital Improvement Program (CIP)
budget would result in a net economic impact of In addition to the effects included in the
1,510 fewer jobs. This would produce a decline economic and fiscal impact analysis, the
in total Santa Clara County employment of elimination of prevailing wage is also likely to
approximately 0.2%. reduce wages for the construction workforce
•
• employed on the job.
While small in the context of the entire regional
economy,this loss of 1,510 jobs is equivalent to: • The labor income thus reduced would then shift
• Losing 40% of all local jobs at Applied to another production factor, which (since the
cost"of materials is typically fixed) would likely
Materials.s be income for the contractor/owner. This
• Losing 80%of local jobs at Adobe Systems.' reduction in wages and shift in income is
difficult to quantify at the local level, and
• The total projected economic impact of a therefore was not included in the 'economic
proposed Major League Soccer stadium in impact analysis.
San Jose.'
• Three times the local jobs projected at An illustrative analysis of an upward shift of
SunPower Corporation, to which the City of $1,000 in household income - again using the
San Jose recently offered a $2.5 million IMPLAN model for Santa Clara County -
incentive package.' provides insight into the potential effects. If
income decreases by $1,000 for a household
For the purpose of evaluating return on earning$75,000 to$100,000,and simultaneously
investment of taxpayer dollars, the economic increases by $1,000 for a household earning
development effects of local prevailing wage above $150,000, the net effect is a decrease in
policy can be compared to the standard county economic activity of$34.
"economic multiplier" impacts of public
spending.Economic multipliers show the"ripple Generalized, this result indicates that for any
effects"in the economy resulting from increased upward shift in income between these two
output in a particular industry. For state and brackets, total economic activity will decline by
local government enterprises in California, 3.4%of the amount shifted.
1
•
P R E V A I L I N G W A G E I N SAN JOSE 9
''2'-"°!=r'4'»•r.;�:era••-r�rya+er:w,.-tcr^..a;rvn,^�� �,r�yrrrn "--`v;n,�.c% wacr�� a.w�x���;-s r Viz. t'
"5 ',",�,� :3, jc-' ; y":^„�•,�v: .,'=S•;•��.a4�._ ro e-e.<.,.a1TR:t'va`' ho,•.aa-�.; :can.
141st.6r GE �4,PICTURE;T:I PA tS`OF,:'ALL RREVA TE WAG; " :`r"' r q x" 5 �'': '
GfF ��POLI-CIES,�:#;,���.;h,:�;,r� ��:, n �,.�.t..��:�'�Y.
�rsssa:-�...,w....,,,...u...�w..,n`SE;�..:n.,.�..,.:....m.msv.� 3 :�: , .xinw.�lcY�"-it�.s`..�..��',:`'"`5'�ii4' i.,�pr�"vl`��...k%m:`�
• A conservative estimate suggests that all prevailing wage policies in effect within the
county from 2008 to 2010 had a cumulative impact of$75 million in additional economic
activity.
The preceding analysis examined only projects Santa Clara County economic activity was
built by the City of San Jose.Yet nearly all public increased by $74,666,000 from 2008-2010
works within Santa Clara County — with the because of federal, • state, county, and city
. exception of City of Palo Alto-funded projects— prevailing wage regulations on municipal
are built under local, state, or federal prevailing buildings.
wage policies.
This estimate is highly conservative because it is
To estimate the cumulative impacts of all based only on public building projects, omitting
prevailing wage policies on the county economy, the impact associated with other public works
we obtained total public building construction . construction such as roads, sewers, and other
expenditures in Santa Clara County for 2008 to infrastructure-related projects (which are
2010. This includes all federal, state, or local outside the scope of this study).
government building projects, but does not
include non-building public works such as roads The estimates are also conservative because the
and sewers. Palo Alto projects were subtracted 6% rule was derived from the repeal of a city
from this total, resulting in $1,244,428,000 in prevailing wage policy, assuming that federal
public building projects built from 2008-10 and state policies remain in effect. If prevailing
which were covered by prevailing wage. • wage regulations were removed at all levels,then
1 it is likely that the impact would exceed 6%.
• Applying the "6% .rule" derived from the With complete repeal of prevailing wage
preceding analysis of library projects — that is, standards, the structure of the regional
roughly 6% of the value of a library or similar construction labor market would change as
project leaks from the Santa Clara County construction worker income falls and workers
economy if projects are not completed under move from the Bay Area to locations with lower
prevailing wage policies—this data suggests that costs of living.
•
t• it,,4- �:+.uuen*,-{=.�.,, ..)w_-:W;viy.-Rm-.:, a,�,�f;'S�?p".",f'r"s".' -.•,'V,: ;nY"^:fl;ti.. ��4:'•.��i ^,ti,`sS'-'��.�,'; �;.''+liyM'`�""�i=ilxs. �w�,�pn•Yti?r�rif i'r. :,y.
4 „des. .t '? 1=' ,t .`.3�t,`.}P.iw� `1,: �� i, 'Ctdr1;. 'k`i';;,:: 's } -� ?�}i�''a,fc,'?O;. .Ssl- r , ..
w�, i}4`;A mil- -�'n At��"� y=.5�,,,11.1 ��� 'W4=k'�°1-:�1' f
.p`�g' C=:A S1AN�E�=�fiUS:�S��.�.U- � R.-�,t��-,� ��r.��z�s,,x;�,,.,�. � .1a�,��•_���, ty�� ,',���-' . r-, r�., �� �.•$
Lly a � t dn2�T � 4tt y,t.. iY4 !e §r-�- '�i�5. �S' ;+'' a y, l.
l',s;»t3.i:. rs':tirt;:s't,:...,.:_5,..,lixaC:ct,�a?
• A typical non-union construction employee on a non-prevailing wage project without
health benefits would be eligible for$916 to$8,032 in public assistance for his or her
family.At prevailing wage with health benefits,the same worker would earn enough to
support his or her family with no public assistance.
•
•
In high-cost Silicon Valley, workers with low In a hidden subsidy for industries paying
wages and no health coverage face particular substandard wages, the region's taxpayers
challenges in supporting their families. provide state- or county-sponsored children's
Inadequate compensation not only impacts health coverage,low-income tax credits,and free
individual workers; it also places an additional or reduced school lunches to low-wage workers
burden on the region's safety net services and in order to make ends meet for themselves and
thereby on the greater public. their families.
PREVAILING WAGE IN SAN JOSE 10
•
Secondary Public Subsidy for a Non-Prevailing Wage
Construction Job Without Health Benefits
Santa Clara County, 2009
$9,000
$8,032
t $6,000
.17
84,904
$3,665
z
? $3,000
$916
$0
Single adult 1 parent,2 kids 2 parents (botb, 2 parents (1
• working),2 kids working),2 kids
Figure 2.Source:Government Transfers to low-Wage Workers Calculator
Taxpayers subsidize employers through public between $916 and $8,032 annually per worker
assistance programs only if those employers are affected,with the midrange subsidy estimated at
not paying a livable wage with health benefits. $3,665 annually per worker affected.
To approximate compensation on prevailing
wage projects versus non-prevailing wage With this secondary subsidy propping up
projects, the model uses average weekly wages inadequate pay, the majority of responsible
for Santa Clara County construction workers employers who do pay livable wages find
covered or not covered by a union contract.We themselves at a competitive disadvantage.
also modeled the presence or absence of
affordable family -health coverage, using the Furthermore, the burden of the invisible public
simplifying assumption • that workers on subsidy for low-wage work threatens the region's
prevailing wage projects have comprehensive social safety net. Emergency rooms, community
job-based family health insurance, while those clinics, and hospitals such as Valley Medical
on non-prevailing wage projects do not. Center are hard-pressed to maintain adequate
health .services as the number of uninsured
The hypothesized reduction in Wages, combined workers has grown to more than one-fifth of
with a loss of health coverage, would incur a Silicon Valley's workforce."
secondary subsidy from taxpayers totaling
•
P R E V A I L I N G W A G E I N SAN JOSE ` 11
t �`"`7. �'"` i .�"k r�',ir^'s' �: $f"'r=�y"s,'�'„r-`� sr••"j waym^at;,.n_3.;t?.t%':`t'-n`'°,rtl"r. ...s+. 1�:.�,�is'
x�ar•s,-i•.,,z....z r•-"^„ri„--_•.^„•,�*rx;�m�„rsr:i.�� e>nra-.*^'_u .r., -^^,^n.v-"� 'r *,y4� �sr r,'.-n..Fs,;',:;-r�-. �., •�;y.;,.;,R,-.�-s;�ki.r
:1 m� ��r 4 s ns• .5��'Y,+S=;;rn.„ntL� Y' ^m Pii':�,',, y, `n.1�.,.+-�, {:M;# •tai'•-,
EDL1CA11 N AND._TRAINING.OPP_,,ORTUNITILS. 11.2V'- .. `r ° _ t
t:-_.,�,,.s.............®< �,�,.c.`-�.�.-+...�, w�'.c.k�4.. , - `�.'�4::��'Vji�`�,:.. "�:„-•;` 'v'c, ;X:, s'tS7.:.�'��t :s,'. a"+ $=ax..,.ya{.,
- c• �. -. en".s."..w..ai.-..�w.w^Ka.+;�saw�.,".,.s;�. S sia?�.:. i32� ;=�. �at.,s.�,u,.,Kf.'�;':=,.-'•.a'^.-<,:�nn,_.c.s.',sn4..,2 -.7s
• In the past twenty years,14,104 County residents have been educated through
apprenticeship programs.These privately funded industry training centers provide
motivated students with no-cost education and paid on-the-job experience.
• Because they provide placement opportunities for apprentices,prevailing wage projects
are critical to sustaining the apprenticeship system.
• If apprenticeship programs could no longer enroll students,it would be equivalent to
cutting enrollment at San Jose City College in half.
Apprenticeship is a form of post-secondary the present, 14,104 Santa Clara County residents
education that combines classroom and hands- participated in apprenticeship programs.
on training with paid on-the-job training. •
Apprenticeship programs require an intensive, With an average annual enrollment of 2,339
long-term commitment from the student; the - students, apprenticeship programs in Santa
training period is three to five years and typically Clara County educate approximately half as
requires successful completion of a curriculum many full-time equivalent students annually as
of 400 to 800 classroom hours combined with Mission College (4,423 FTE students in 2008) or
3,000, to 8,000 hours of on-the-job training, San Jose City College (4,457 FTE students in
where apprentices work side by side with 2008). Privately funded apprenticeships thus fill
experienced workers to learn the skills required a significant gap in the educational system.
for a trade.
•
Joint labor-management Ethnicity of Construction
apprenticeships (which represent
92%of all apprenticeship graduates Apprentices in Santa Clara County
in California) are free to the
student and offer full-time paid krq'nLL•';
work experience with a living wage {��`'i- 1gc.,'ra 4.-,
and healthcare coverage, making ' :Asian or
them a key pathway for students +. a Pacific
with limited financial means who American kk Islander,
Indian or 5%
are seeking a lifelong, family- Alaskan
supporting career.il Native,1% Black,5%
Joint apprenticeships are paid for The San Jose prevailing wage policy, like state
and overseen by a training trust fund,which is prevailing wage, requires contractors to employ
funded by a small hourly contribution made by apprentices in specified ratios on covered
all journey-level workers in the trade Who are projects. These public works projects provide
union members or work for a participating critical paid work experience for apprentices
employer.The State of California Department of
Apprenticeship Standards has oversight Studies which have examined the relationship
authority over all registered apprenticeship between prevailing wage and workforce training
programs in the state. show that•states with prevailing wage laws have
more apprentice training slots, higher rates of
The registered apprenticeship system is the apprentice completion, and better training
primary source of highly trained workers for the outcomes for ethnic/racial minorities than do
California construction industry. From 1990 to states without prevailing wage laws.12
1 -
P R E V A I L I N G W A G E I N SAN JOSE 12
If prevailing wage were eliminated, then , Prevailing wage is therefore critical to sustaining
opportunities for apprentices on public works the apprenticeship system.
projects would likely .decline substantially.
�,s+evarrc•u?v.sr+•- ne�r>,a*n�.:vaiJ-� _ �tnn;�^9,yv m•�\ ,;�-h y�.• ,w,•�;�,n1.v Mc,�.A:rrs„4'.^?°'�p`i��".Hk�`.°,�:�x��,'}• tom•, i'���S�i;�sr'Yfi,:4'�>:�.F
-.�if.-%y'•C''.`��"'-, ;�,:P.r„ �^;h% ±b�;r'ry.`2i:.,;';�,'s� � � :�a � �`�;.vY31k�';';;;y«,-�(-.,..,- ,st.�''�
pfCFOI et713I9:MTV.. , } ,- ;�;F.w :r:,;�., t.
d -vy� s°-,'•-� -V,k'• =or=:,;�;�,,�`� '�;�'�" ^'�� 'k, XCx.Si�i"r�'n v i °,SS'b �•,�:•; `�2=Yar � ''°°� M
7 �,f,oit5�•..u��:t ��-„='?.,i�z..:.�'.v�14�:•�i"n:-
u �iFU:.m..assxu:.`s.s.Aux-:..�u......�.....,.:�s:x.}.•i ;�di :S'.�;^`_ YG��:sater'trs.S3'.�'�:.�u��,:V %af k�a:aSlia �. .c'.h:.>�i3::.u.n_.....u:.—..:s” .s�lx;
• Relative to the total construction workforce in Santa Clara County,joint apprenticeship
programs employ 1.4 times more women and 4.7 times more African-Americans.
Women and minorities, particularly African- at large to employ an African-American.
Americans, have historically been
underrepresented in the United States Examining the data by gender, women
construction industry. Joint apprenticeship comprised just 1.7% of construction industry
programs in California typically enroll a higher workers, yet made up 2.4% of enrollments in
proportion of women and underrepresented joint apprenticeship programs: Joint
minorities than are employed in the industry at apprenticeships were therefore 1.4 times more
large, making them a valuable pipeline for likely than the industry at large to employ a
increasing these populations' access to woman.
construction careers.
Representation of Women and African-
Americans in the Santa Clara County
Construction Industry
•Joint apprenticeship programs ■Construction industry
4.7%
5? �kt .K04 2A%
04.4. 1.7%
1.0% 4.ar
African Americans Women
Figure 4.Data represents residents of Santa Clara County. "Construction industry"
includes residents employed in non-supervisory construction occupations.
- Source:DAS and ACS 2006-2008
An analysis of joint apprenticeship program While these numbers are still low,they indicate
enrollments in Santa Clara County compared that the pipeline of workers currently being
with construction industry employment from trained through apprenticeship programs,if they
2006-2008 shows that 126 African-Americans remain employed in construction, will diversify
residing in Santa Clara County enrolled in joint the industry relative to its current state.
apprenticeship programs during this period,
making up 4.7% of all enrollments. Among all If prevailing wage projects did not provide
residents employed in non-supervisory placement for apprentices, the opportunity to
construction occupations, African-Americans access construction careers for women, African
made up just 1.0%. Joint apprenticeships were Americans and other underrepresented groups
therefore 4.7 times more likely than the industry could be considerably.reduced.
P R E V A I L I N G W A G E I N SAN JOSE 13
,y. w w+.-,�.. ,4 z _ _ .ta., 1"_ f.i'�fi".3,y�w,.aY, , J„ �;u'`"�'}4x'':'yn` � c`� i''a �4��s,";�v ��"1.i'i:�"'°^a14t�C3�`•.,y.••���i�',, zvaExi',1
�' ''� -,.v� �"! � ,rd` ,,S'; ' tol:�+'='si;:;�'� 5f�°A,r }t�',�-'-4 y�E�_��'�� xjl �,t".i`" tF,., a'r �'"%t�:v,
T$AFgt,g -E IRON', ENTAg ,:r.,. _ N f` �,., .�,c»,hr;-.w �.
ra�..sad.�..,ss.n���ot.-,�.:',a_,::.+>:r vrc,axr1.��.L iwrv.wke...�..,.ua<:.MFACl'cSsj�1vR:".S�`4t.iv ;.-�-.:���i,:,.'���s�Ai:����c:dizf�i;r,zt+.tiar'M:.�.t�,Siizia'�i:Y�:?J'i,Fku�t,£.''k`o�.Yr`�r�ir'.�:::sw':�'���L.t':1v
• In 2008,non-local construction workers employed in Santa Clara County cumulatively
drove over 1 million miles per day to and from work.If this work were instead performed
by locals with shorter commutes,then the estimated savings would be 123,619,000 miles per
year.
• If a project is not covered by prevailing wage,then the shift towards a non-local •
construction workforce induces excess commute miles,resulting in traffic congestion,less
• livable neighborhoods,lower social cohesion,and increased greenhouse gas emissions.
In addition to economic impacts,importation of average of 43 weeks of work per year for
a non-local workforce creates traffic, and BCCWs14, the non-local construction workforce
environmental impacts caused by longer in 2008 accounted for a total of 191,218,000
commutes. Analysis of construction workers in Vehicle Miles of Travel(VMT).If the work done
non-supervisory occupations (Blue-Collar by non-local commuters was instead performed
Construction Workers) employed in Santa Clara by local residents, then the estimated savings in
County from 2006-2008 shows that 66% lived annual VMT (after subtracting the average in-
within the county. Of the remainder, 10% lived county commute)would be 123,619,000 miles.15
in the Central Valley, 6.4% in Alameda County,
4.9% on the Central Coast, and the remainder Excessive commute distances generate traffic
scattered throughout the state.13 congestion, impact neighborhood livabilty, and
pollute the air. Nationally, the San Jose area •
Estimating commute times based on county of ranks as the 6th most congested commute shed,
residence, in 2008, non-local Blue-Collar averaging 53 hours —or more than 2 full days—
Construction Workers (BCCWs) employed in of traffic delay per driver in 2007. This
the county drove an estimated 1,084,000 congestion cost the South Bay an estimated $1
commute miles daily. billion in lost productivity and wasted fuel 16
The average non-local construction worker had Commute times and traffic congestion have
{ a round-trip commute of 105 miles, compared significant impacts on livability and community
with an average daily commute of 37 miles for . cohesion. Long commutes limit the amount of
BCCWs living in Santa Clara County. With an time that workers have available to spend at
Table 3: Top 10 Counties of Residence for Non-Local
Construction Workers Employed in Santa Clara County
t� `ri.'c"�'+s%u'W S��T b �" ,i 4�:,°s � 'Ca�Iu'�S"<"s+h
:,,t6P�9 a quxitfes Round-frip U °stancntSr a ea e9u ty(�mi ti s°
�..`' .ev, ;"s'�'.. 1*•';,. 'r"ry.,_u„1x57,.,.,°..,,n` '”. 5": a4. 'vf3`aP�;.dl."`2'. t�'
1.Alameda 72
2.Santa Cruz 84
3.Merced 202
4 San Joaquin , 163
5.San Mateo 70
6. Contra Costa 113
7.Stanislaus 191
8.San Francisco 89
{ 9.Monterey 125
10.Solano 189
PREVAILING WAGE . I N SAN JOSE 14
home and in their communities, reducing civic - and to 80% below 1990 levels by 2050 — a goal
participation and straining families. Local that can only be reached if vehicle-produced
residents are affected indirectly as increased emissions are greatly reduced. California voters
highway congestion generated by commuters recently affirmed their support of this goal by
forces locals to spend more time in traffic. decisively rejecting a Nov. 2010 ballot measure
attempting to suspend AB32.
Finally,miles travelled by passenger vehicles are
a major driver of climate change;in fact,they are The imperative to reduce Vehicle Miles of Travel
the single largest CO2 emitter in California. In is further emphasized by SB 375,passed in 2008,
addition to accounting for 27% of the state's which requires regions throughout the state to
greenhouse gas emissions, vehicle emissions take greenhouse gas emissions into account in
produce smog and other pollutants that affect their land use planning. Santa Clara County
residents' health." California's historic Global faces considerable challenges to meeting this
Warming Solutions Act of 2006 (AB32) goal. Total VMT in Santa Clara County rose by
committed the state to reduce its total 41%between 1990 and 2000 and are expected to
greenhouse gas emissions to 1990 levels by 2020 double by 2030'$ -
_ ,r.. �°,u ,i�' '4..��{�tr�:ti.j^� i„Sµ�.yl£uTMw._N,i't� "Ei"'N%',"i'YG,',.,. ;.a,:;,�s"e,: i si.'^-1^' :*+..-,•a,.r; ar;atc i
- '�� Tr o-" -%,+ %h5 `i;. �i:;i+-p`ir ".ti''=:^ i r "'' Y;; s� C1`;r:�:::4.;�;�-
`k' S'et,.,,i,-•.k,^t,',.s";:^i�r.;� » :y;.Y.
,REFEENCES,:;
'1%-- �' •lu .' 1 �;2 ,x"iv.a�`�;"s i„ "-,4� � > 1 'YX `Y' tttr - 'G�` --�'
.x�5 :ra- `s�' - 4,.�-•3" •art'r: C r;-,.�A?.tif•` �,+.,,�.,-'��I y
.�.. .,.n. ...�.3 _;:ay.-axG�',.'sS'�',h-,'c•._....- 1kk' +�..,,'�s::r:+�..4�.�.,•^.r.�°i+.:+._•, w...� x:n,e��S ua W":.:�.ri:?u...''_)"-.r''lwu�,?:.w,.”:F`,i�il?,:13,�.9nx'h :,vC�c:�... ..� (.:<rxY'�„i^ -�`v, i�i� .6
'Jenny Reid Austin et al,Silicon Valley Roots(2006).Sunnyvale,CA;NOVA Workforce Board.
2 See Appendix A for a review of existing literature on construction costs and prevailing wage,
3 JaeWhan Kim,Kuo-Liang Chang and Peter Philips,"The Effect of Prevailing Wage Regulations on Contractor Bid
Participation and Behavior:A Comparison of Palo Alto,California with Four Nearby Prevailing Wage
Municipalities".Article,Refereed Journal,submitted,Nov.30,2010. •
4 Other types of capital improvement projects such as parks,water,sewers,roads,and airport taxiways are not
included in this analysis because they may differ significantly in subcontracting patterns from municipal buildings.
This analysis provides a conservative estimate of impacts because not all capital improvement projects are included.
'As of June 2009,Applied Materials had 3,988 full-time equivalent employees in greater Silicon Valley.Source:
Silicon Valley/San Jose Business Journal Book of Lists,Vol.27,No.36,Dec.25,2009,p.114.
e As of June 2009,Adobe Systems had 1,850 full-time equivalent employees in San Jose.Source:Ibid,p.112.
7 SportsEconomics LLC,"Market Assessment and Economic Impact Analysis for Proposed Soccer Stadium in the
City of San Jose(A Secondary Study)."Prepared for City of San Jose,February 8,2008.
&See http://www sjeconomy.com/publications/pressreleases/sunpower 11 16 10.pdf,Subsidy package is subject to
approval of the San Jose City Council.
• 9 RIMS II Multipliers for the state of California,July 2002 Release,Bureau of Economic'Analysis.
19 American Community Survey 2009.
11 Corinne Wilson,Construction Apprentice Programs(2009).San Diego:Center on Policy Initiatives.
http://onl inecpi,org/downl oads/Construction%20Apprenticeship%20Programs%20report.pdf
'2 Peter Philips and Chh Bilginsoy,"Impact of Prevailing Wages on the Economy and Communities of
Connecticut.”(2010)University of Utah.
13 Analysis of Blue-Collar Construction Workers(BCCWs)performed by Alex Lantsberg with data drawn from ACS
2006-2008.This data covers the entire construction industry,including residential,commercial,and public sectors.
While the data source used does not differentiate between these sectors,it is likely that large commercial or public
jobs attract a higher proportion of non-local workers than does the residential sector.
14 ACS 2006-08,accessed via DataFERRETT.
15 Using BCCW dataset described above,commute distances between counties were estimated with Google Maps.
Workers residing more than 200 miles from Santa Clara County are excluded on the assumption that they are
unlikely to commute daily.Means of transportation to work is estimated using the 2009 American Community
Survey Workplace Geography dataset.Commute distance within Santa Clara County estimated using 2005 MTC
data adjusted for BCCWs using the ACS travel time to work variable.
16 Shrank,David and Lomax,Tim."2009 Urban Mobility Report."Texas Transportation Institute.July 2009:
'7 California Air Resources Board,"California Greenhouse Gas Inventory for 2000-2008",updated May 12,2010.
'3 Metropolitan Transportation Commission Projections.
1
Prevailing Wage Opponents Fail to Look at the
Research
Part One of a Three-part Series on Prevailing Wage
Prevailing wage laws have long operated nationally and in states as a check
against the tendency of the construction industry to degenerate into
destructive wage and price competition. Such competition can drive skilled
and experienced workers from the industry,reduce productivity and quality,
and lead to poverty-level jobs, all without saving construction customers any
money.
In an exhaustive review of the research on the impact of prevailing wages on
contracting costs, Nooshin Mahalia concluded:
At this point in the evolution of the literature on the effect of prevailing wage
regulations on government contract costs, the weight of the evidence is
strongly on the side that there is no adverse impact. Almost all of the studies
that have found otherwise use hypothetical models that fail to empirically
address the question at hand.Moreover,the studies that have incorporated
the full benefits of higher wages in public construction suggest that there are,
in fact, substantial, calculable, positive benefits of prevailing wage laws.
Although the weight of evidence suggests prevailing wage laws do not raise
costs, advocates for repealing the law in Pennsylvania continue to repeat some
version of the following:
Prevailing Wage law also harms taxpayers, as it forces them to pay higher
labor costs on public construction projects. Construction companies forced to
pay union-inflated wages and benefits will pay upward of 30 percent more in
labor costs for identical work on private sector projects. This adds a little
more than 20 percent to the cost of every taxpayer-funded construction
project—resulting in an estimated $1 billion cost for state and local
taxpayers each year.
- Matthew J.Brouillette
President & CEO of the Commonwealth Foundation
March 22,2011
s , .
What is the source of this 20% saving claim? One source is Nathan Benefield,
the research director of the Commonwealth Foundation, in this 2009 blog
post.
Benefield compared wages as measured in Occupational Employment
Statistics (OES) to the Pennsylvania Department of Labor and Industry's
prevailing wage and concluded that prevailing wage rates are on average 37%
higher (in a future post, I will address this issue directly). To estimate how this
difference will affect total cost, Benefield assumed that labor represents 45%
of total cost.
There are several problems with this analysis.
Today I will address the first: it fails the laugh test. According to the 2007
Economic Census of Construction,labor costs represent no more than 24% of
total construction costs in Pennsylvania.In road and bridge construction,
much of which is funded by the state and thus impacted by prevailing wage
regulations, labor costs represent no more than 21% of total cost.
If labor were 45% of total costs, and cutting wages and benefits were to have
no impact on worker productivity,it would be possible to achieve a 20%
reduction in total costs with a 37% reduction in labor costs.
But only in Commonwealth Foundation World do labor costs account for
45% of construction costs. Tables lA and 1B below show that if you use actual
data on labor's share of total cost, the wage declines necessary to achieve a
20% reduction in total construction cost are impossibly—laughably—large.
In all construction, for example,labor costs are 24% of total costs. With labor
costs at 24% of project costs,wages must fall by 70% to wring 20% out of
total production cost, from $36.30 to $10.89 per hour for a carpenter in
Philadelphia— that's below even what Benefield claims Philadelphia
carpenters make when not on a prevailing wage projects (see Table 1A).
With labor costs equal to 21% of project costs, as on road and bridge
construction, wages would have to fall 80% to lower total costs by 20% (see
Table 1B). Cement masons in Dauphin County employed on a road project
would see their wages fall from $34.76 per hour to $6.95 per hour (the
minimum hourly wage is currently$7.25).
Table 1. Changes in total cost as a function of the share of labor cost
2
A: Benefield's calculation assuming labor represents 24% of total
construction cost in PA
With P.W. Without
P.W. % Change
Labor Cost $240,000 $72,000 -70.00%
Non-Labor Cost $760,000 $760,000
Total Cost $1,000,000 $832,000 -20.19%
B: Benefield's calculation assuming labor represents 21% of total cost in road
& bridge construction
With P.W. Without % Change
P.W.
Labor Cost $210,000 $42,000 -80.00%
Non-Labor Cost $790,000 $790,000
Total Cost $1,000,000 $832,000 =20.19%
Note. The calculation of percent change is sensitive to the point of reference.
The percent change in labor cost is calculated relative to the labor cost with a
prevailing wage. The percent change in total cost is calculated in reference to
i
total cost without a prevailing wage. To switch the point of reference is
unconventional but necessary to remain consistent with the manner in which
Benefield made his calculations. Calculating the percent change in total cost in
the cases above where total cost with a prevailing wage is the point of
reference results in a 17% decline in total costs.
Recall that Benefield's Iaughable savings projections are the basis for the
claim that the state can save $1 billion per year. Don't count on it.
Part Two of a Three-part Series on Prevailing Wage.
Read Part 1.
The overwhelming weight of evidence based on the actual cost of public
construction projects shows that prevailing wage laws do not raise costs.
Therefore, advocates of repealing the law in Pennsylvania ignore this
evidence. Instead of"evidence-based policy," we have "lack-of-evidence-based
policy." Go figure.
Repeal advocates use a hypothetical calculation that makes assumptions about
cost, rather than empirically examining the relationship between higher wages
and total construction costs. (As discussed here, even these hypothetical cost
estimates don't make sense once you apply real world data to how much labor
costs represent of total construction cost.)
Another key ingredient in the hypothetical calculations used by proponents of
repeal is the claim made most recently by the Pennsylvania State Association
of Boroughs (PSAB) that "the prevailing wage is 30 percent to 60 percent
higher than the average wage for the same occupation."
This claim is based on an update of a flawed calculation by the
Commonwealth Foundation. It compares the prevailing wage levels by trade
as set by the Pennsylvania Department of Labor & Industry with the average
wages for construction occupations reported in Occupational Employment
Statistics (OES). The prevailing wages are,30% to 60% higher than the OES
averages.
The problem is, the Commonwealth Foundation/PSAB calculation is the
proverbial apples-to-oranges comparison: it measures different portions of
the construction industry.
OES data include wages paid to workers employed in the residential
construction sector—smaller, less-complex projects than prisons, bridges,
schools and other state-financed construction. Residential construction relies
on workers less skilled and experienced than those needed for larger state
projects.
Indicative of this skill gap in Pennsylvania is the fact that construction
workers employed in nonresidential construction—most of which is private
sector, not public—earn 52% more than construction workers in the
residential construction sector. In other words, the gap between the
occupational prevailing wages set by the Pennsylvania Department of Labor
& Industry and average construction wages reported by OES reflects the
wage gap between residential and nonresidential constructional (See Table 1
below.)
Using OES data to estimate the potential savings from repealing the
prevailing wage law greatly overstates the potential cost savings. Actual wage
levels on state construction projects without prevailing wage laws would not
fall 30% to 60%. Assuming such savings and assuming that any drop in wages
would have no impact on worker skill and productivity lead to false claims of
large savings from repealing prevailing wage.
Of course, why use hypothetical calculations at all when we have actual data
on what construction costs with and without prevailing wage laws? In my next
post, I will review the research literature that examines actual cost data over
time and between states to estimate whether prevailing wage laws influence
total project cost.
On Tuesday: Prevailing Wage Opponents Fail to Look at the Research
Table 1. Average Weekly Wages in Residential and Nonresidential
Construction in Pennsylvania
3 a
Average % Difference
Weekly Average in Residential
Construction Specialty wage: Weekly Wage: &
Residential Nonresidential Nonresidential
Wages
Constructiont $771 $1,170 52%
Building construction $796 $1,223 54%
Heavy and civil engineering ND $1,262
construction
Poured concrete structure $688 $943 37%
Steel and precast concrete $1,100 $1,126 2%
Framing $644 $985 53%
Masonry $636 $957 50%
Glass and glazing $888 $1,078 21%
Roofing $660 $942 43%
Siding $730 $946 30%
Other building exterior $818 $822 0%
Electrical and wiring $887 $1,232 39%
Plumbing and HVAC $816
contractors $1,245 53%
Other building equipment $879 $1,233 40%
Drywall and insulation $751 $1,093 46%
Painting and wall covering $639 $985 54%
Flooring $625 $988 58%
Tile and Terrrazzo $686 $994 45%
Finish carpentry
contractors $718 $935 30%
Other building finishing $691 $870 26%
contractors
Site preparation
contractors $756 $987 31%
All other specialty trade $696 $977 40%
contractors
Note. ND=No data
t Average weekly wages for residential and nonresidential construction are an
employment weighted average of the average weekly wages paid in each
subsector.
Source. Keystone Research Center based on 2010 Quarterly Census of
Employment and Wages data.
Footnote
[1] Beyond the fact that they measure wages in a construction market that
bears little resemblance to the public construction market, OES data have
other limitations that make them unusable and inappropriate for purposes of
comparison with prevailing wage rates.At the county level, OES data do not
distinguish between construction occupations within the construction industry
(residential plus nonresidential) and those in other industries. Construction
occupations in all other industries—e.g., utilities and manufacturing, repair
industries and building services—are all lumped together with the
construction industry itself in the OES.As a result, at the local level, even
more than the state level, OES data measure wages in a pool of jobs quite
different from those on state construction work. The OES survey does not
collect information on compensation paid in the form of health insurance and
pension benefits. To overcome this limitation,PSAB uses a national data
source to assume that fringe benefits represent 30.4% of reported wages in
Pennsylvania.
The Final Part of a Three-part Series on Prevailing
Wage. Read Part 1. Read Part 2.
In the first two posts of this series,I explained why the numbers being tossed
around by advocates of repealing prevailing wage don't add up.I explained
that the claims of cost-savings are not based on any actual experience and that
they represent the result of laughable hypothetical, or "what if," calculations.
This leads to the most important point that the Pennsylvania School Boards
Association, the Pennsylvania State Association of Boroughs, the
Harrisburg Patriot-News Editorial Board and others keep missing: we can do
much better than a hypothetical when assessing the impact of prevailing wage
laws.
There is a body of research that examines construction costs (and other
construction outcomes, like safety, training investment,wages, benefits, etc.)
in states with and without prevailing wage laws as well as instates that
eliminated prevailing wage laws. We don't have to conjecture what "might"
happen: we can look at what did happen. The preponderance of the evidence
shows that prevailing wage laws do not raise construction costs.
Back in the late 1990s, Pennsylvania actually ran this real-world experiment
itself—we lowered our prevailing wage levels, particularly in rural areas.
That means we can look at what happened to construction costs. What
happened is the same thing that has happened in other places—lower
prevailing wages did not translate into lower construction costs.
Specifically, the Keystone Research Center's 1999 study of this Iate 1990s
Pennsylvania policy experiment examined changes in public school
construction bids when Pennsylvania's prevailing wages were lowered
substantially in rural areas. Keystone found no association between the
number of occupations in which the prevailing wage was lowered and the
price per square foot of school construction bids. If anything, construction
bids appeared to go up more in areas where prevailing wages were lowered
more. _
Advocates of repeal often point to sympathetic construction managers in the
public sector who testify, based on their expertise, that prevailing wage laws
raise costs. Not only did the Keystone study find no statistical evidence of a
cost difference during the period wages were lowered, but the study
highlighted two revealing instances of construction managers making wild
predictions that just didn't come true:
The recent experience of two Pennsylvania school districts show that even
increases in legally mandated prevailing wage and benefits rates do not
necessarily increase public construction costs. In March 1999, after two
months of legal uncertainty about required prevailing wage levels, [the
Pennsylvania Department of Labor and Industry] began issuing prevailing
wage rates that were higher than the 1999 rates. The Blue Mountain School
District, in Schuylkill County, was planning to renovate its high school. In
April 1999, the school district's construction manager estimated that
construction costs would increase by about$670,000 as a result of the higher
prevailing wage and benefit rates. But when bids for the project were opened
on May 6, the low bids,which were expected to be about$15.1 million, came
in at only about $13.8 million, almost 9 percent below the anticipated level.
And in April, bids for a middle school construction project in Tamaqua,
which used the same prevailing wage and benefit rates as the Blue Mountain
bids, also came in under budget estimates.
Of course, anecdotes pro or con pale in comparison to careful statistical
examination of large-scale data sets on actual construction costs.A study
published in the Journal of Education Finance in spring 2002 explored the
dependence of school construction costs across the United States from mid-
1991 to mid-1999 on factors such as the state of the economy (measured by the
level of unemployment), the size of the school, the season, and the existence of
a prevailing wage law. The analysis found that public school construction
costs:
.rose 22% when the unemployment rate declined by half;
•fell 2.5% for bids accepted in the spring compared to bids accepted in
the fall;
'fell by 4.7% with a doubling of the school size, indicative of modest
"economies of scale"; and
.did not go up or down a statistically significant amount based on the
presence of a prevailing wage law.
Another article from the Journal of Education Finance explored the impact of
the establishment of prevailing wages in British Columbia at about 90% of the
collectively bargained wage. This analysis, looking at a wide range of variables
that potentially impact school construction costs, found that there was no
statistically significant change in construction costs following establishment of
a prevailing wage.
e r
In Michigan in the 1990s, school construction costs did not differ significantly
during a period when the prevailing wage law was suspended temporarily
compared to the period before and after.
The reason researchers don't observe differences in cost associated with
prevailing wage laws is that higher wages in construction tend to reflect
higher productivity. Family-sustaining wages, health coverage and good
pensions attract and retain workers, leading to an accumulation of what
economists call "human capital"—know-how that allows a skilled trades
worker with years of experience to problem solve and do the job more quickly
and right the first time. This know-how also translates into lower costs due to
less need for supervisors and the higher retention of experienced workers
which lowers recruitment and screening costs. Higher wages also promote the
use of labor-saving technology and management practices that keep per-
square-foot costs low.[1]
While research fmds that state prevailing wage laws do not significantly raise
construction costs, these laws do lead to more investment in workforce
training, lower injury rates, and higher wages and benefits (click here for a
review). Thus,prevailing wage laws tend, over time, to lead to a more skilled
and experienced workforce that is less likely to leave the industry,
compensating for higher per-hour wage and benefit costs.
For a comprehensive review of the research literature on state prevailing
wage laws,I highly recommend this work by Nooshin Mahalia. Unlike the
Cato Institute journal, which the Patriot News Editorial Board told us it relied
on in supporting weakening the state prevailing wage law,Mahalia's piece
represents a full and careful review of all the literature. The Cato journal
article, by contrast, ignores articles in peer-reviewed academic economic
journals and relies on ...wait for it ...hypothetical calculations that support
the ideological predisposition of the Cato Institute against regulation.
OK, we get it, that's the Cato Institute's excuse. What's the excuse of the
Pennsylvania School Boards Association or, for that matter, the Patriot-
News Editorial Board, for ignoring the most credible research and evidence?
Footnote
[1] Steven G.Allen, "Unionized Construction Workers are More Productive,"
Quarterly Journal of Economics, 99(2) (May 1984):251-274; Kevin Duncan
and Mark J. Prus, "Prevailing Wage Laws and Construction Costs: Evidence