On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 into law.1 It is the country’s most ambitious investment in climate solutions to date; it also takes steps to rein in the cost of prescription drugs and make the wealthy and corporations begin to pay their fair share in taxes, all while reducing the deficit. The Inflation Reduction Act’s massive investments to fight the climate crisis will also help improve job quality in clean energy industries and incentivize the expansion of workforce training pathways into these jobs, which will help lift many people into the middle class. The legislation purposefully includes targeted labor and workforce development standards—primarily prevailing wage and registered apprenticeship targets—as well as significant investments in manufacturing and domestic content requirements for electric vehicles. Pairing climate action with the creation of good jobs—and pathways into those jobs—has long been a goal of many policymakers, especially President Biden, but the Inflation Reduction Act begins to turn that goal into reality on a scale not yet seen in the United States.
Background on clean energy tax credits
For decades, federal support for clean energy relied on boom-and-bust tax credits that expired every year or every few years.2 These credits provided a lifeline to an emerging set of industries—including solar and wind—whose success is essential to the United States meeting its commitments to fight the climate crisis. But the credits’ indeterminate length failed to bring long-term certainty to industry, and the credits themselves never included standards to ensure that they supported high-quality economic outcomes. The Inflation Reduction Act addresses both of these issues.
With the passage of the Inflation Reduction Act, the federal government is for the first time providing clean energy industries long-term support by extending tax credits for 10 years. Equally important, this support is tied to standards and incentives that ensure more Americans have access to registered apprenticeships and high-quality jobs in the clean energy industry. The Inflation Reduction Act is a major step forward in ensuring that government spending creates good jobs for workers.3
This issue brief discusses how the Inflation Reduction Act incorporates prevailing wages and registered apprenticeships to create a skilled labor pipeline, diversify the workforce, and create access to good jobs. It also outlines how the act ensures that climate investments create manufacturing jobs in the United States.
Prevailing wages and registered apprenticeships
The Inflation Reduction Act contains important prevailing wage, workforce development, and apprenticeship provisions to ensure that a larger, more diverse pool of skilled labor has access to good jobs and that employees have the skills necessary to meet clean energy goals.4 It incentivizes these outcomes in the construction of clean energy projects and certain manufacturing facilities through significant production and investment tax credits. Facilities are only eligible for the full tax credit amount if they satisfy newly enacted prevailing wage and apprenticeship requirements. Specifically, the base credit increases from 6 percent to 30 percent for all projects greater than or equal to 1 megawatt if prevailing wage and apprenticeship requirements are met.
The Inflation Reduction Act incorporates prevailing wages and registered apprenticeships to create a skilled labor pipeline, diversify the workforce, and create access to good jobs
Prevailing wage requirements are critical to ensuring high-quality jobs because they require subsidized firms to pay workers at least the going market rate. With the gold rush of industrial activity that the Inflation Reduction Act’s investments will initiate, prevailing wage requirements will be vital to ensuring that federal investment does not drive down wages for construction workers as contractors compete for the lowest bids. Renewable energy sectors already have a spotty track record on wages, and the trend could have continued if they had been further fueled with taxpayer subsidies.5 The Inflation Reduction Act’s prevailing wage requirements instead prevent such a slide, protecting high standards that workers—including unionized workers—have been able to negotiate in many localities; ensuring that government spending does not drive down standards; and supporting robust competition by allowing businesses that respect their workers to compete on an even playing field. Failure to meet these requirements will result in a company being forced to pay back five-sixths of the credit.
What are prevailing wages and why do they matter?
As stated in a 2020 CAP report, “A prevailing wage is the basic hourly rate of wages and benefits paid to a number of similarly employed workers in a given geography.” Companies that pay a prevailing wage benefit workers in many ways. Prevailing wage policies are often able to:
- Support good wages and benefits
- Help close racial pay gaps
- Promote quality work and produce good value for taxpayers
- Level the playing field for high-road employers
- Protect union workers’ gains
- Promote sectoral standards
See the 2020 report’s frequently asked questions for a full explanation of the history of prevailing wages and their benefits for U.S. workers.6
Prevailing wage requirements have long accompanied federal funding of and assistance for construction projects.7 Many transportation and water infrastructure projects often benefit from federal support via contracts and grant programs, such as the Drinking Water State Revolving Fund or formula-based grants that go out to states under the Federal Highway Administration.8 Clean energy infrastructure projects, meanwhile, receive federal support through the tax code, as discussed above. That assistance—known as production and investment tax credits—has not been required to abide by the Davis-Bacon Act and thus pay prevailing wages.9 This created a loophole for clean energy construction that the Inflation Reduction Act has effectively closed for federally supported clean energy construction projects.
Indeed, the Inflation Reduction Act is a major step toward ensuring that all forms of government support for corporations—including tax incentives—promote high-quality jobs.10
The Inflation Reduction Act is a major step toward ensuring that all forms of government support for corporations promote high-quality jobs.
The Inflation Reduction Act also incentivizes registered apprenticeships, which serve as a training and employment pathway into these high-quality jobs. To meet the act’s apprenticeship requirements, employers must ensure that a set percentage of total hours worked on a construction project is performed by registered apprentices. The law’s apprenticeship utilization standards require that in 2022, 10 percent of total labor hours on a supported construction site be completed by qualified apprentices; the requirement increases to 15 percent by 2024.11 This will help support a steady pipeline of well-qualified workers, provide a pathway into good jobs, and diversify the construction workforce.
What are registered apprenticeships?
Registered apprenticeship is a highly effective workforce training and career pathway model. Apprenticeships include classroom instruction and structured on-the-job training from a qualified mentor, also known as a journeyworker.12 Industry partners provide input on the content of training, ensuring that apprentices earn skills that are in demand by employers. Apprentices earn a paycheck while they are being trained and receive wage increases commensurate with skill attainment. Ninety-three percent of apprentices retain employment after completing their program, and they earn an average salary of $77,000 per year. Sponsors of apprenticeship programs attest that apprenticeship models meet employer demand for skilled workers, improve productivity and worker safety, strengthen morale, and improve retention.13
Employers participating in a registered apprenticeship program must comply with federal or state apprentice-to-journeyworker ratios in order to ensure that each apprentice has a qualified mentor to guide their career development, and every employer with four or more employees must hire at least one apprentice. There is one exception to these requirements: They are waived if an employer requests apprentices from a registered apprenticeship program but does not receive a response within five business days or if the employer pays a penalty fine.
These requirements are designed to incentivize employers to hire more apprentices by investing in training and mentorship to create a pipeline of skilled labor, expanding and diversifying the labor pool, and creating greater access to good jobs.
Create a pipeline of skilled labor
In June 2022, the job opening rate in the construction industry was 4.4 percent, down slightly from a record high of 5.5 percent in April 2022, which was the highest rate since data collection began in 2000.14 The construction workforce is also aging faster than that of other industries: Between 1985 and 2015, the average age of a construction worker increased by 6 1/2 years, compared with 4 1/2 years for all American workers.15 Investments in training and mentorship in the early stages of a worker’s career are critical to developing an adequately sized clean energy workforce, keeping workers in the industry and ensuring there is a meaningful pipeline of new workforce entrants.
Diversify the workforce
The current construction workforce is overwhelmingly male and white, but apprenticeships are a promising strategy to diversify and expand its size. Specifically, while 88 percent of the construction industry is white, compared with 77 percent of the U.S. labor force, 14.9 percent of apprentices are Black, compared with 6.3 percent of the construction industry overall—and those just entering this workforce may shift its demographic composition over time.16 Despite an increase in the number of women working in the construction industry at the start of the coronavirus pandemic recovery, the number of women in actual construction and extraction occupations—such as carpenters, laborers, electricians, and plumbers—is typically much lower: 3.9 percent in 2021.17 Yet, 8 percent and 10.4 percent of apprentices in Oregon and Massachusetts, respectively, were women in 2021—two states with strong advocates and strategies to advance women into trades.18
Finally, joint labor-management apprenticeships are more diverse than employer apprenticeship programs on several demographic measures.19 Pre-apprenticeship pathways, such as HireLAX, Building Pathways, and Chicago Women in Trades, prepare individuals for apprenticeship programs and explicitly target underrepresented communities to further diversify the pipeline of new apprentices.20
Create access to good jobs
Apprentices typically do not incur debt to pay for their training, as joint labor-management (most often union) apprenticeships are typically financed by union dues and employer contributions, while nonjoint (employer-only) apprenticeships can be employer-financed or paid for through a direct deduction from an apprentice’s paycheck. Furthermore, apprentices earn progressively higher wages, which provide them economic security while they are still in training. Union apprenticeships typically provide greater value for participants upon completion. Union construction workers earn $58,000 on average, 46 percent more than nonunion construction workers, and are significantly more likely to have private health insurance coverage and less likely to live in poverty.21
The Inflation Reduction Act also creates a unique framework that incentivizes apprenticeship and skill-building investments through government spending. Several states and territories have implemented registered apprenticeship tax credits, which are designed to grant an employer a tax credit after they hire a registered apprentice for a specified period of time.22 And state and local governments ranging from Washington state to Salt Lake County, Utah, have established apprenticeship utilization requirements on public projects to grow the construction workforce and ensure that publicly supported work is accessible to all new industry entrants. While the state-based frameworks are standalone, the framework of the Inflation Reduction Act ties prevailing wage and apprenticeship requirements directly to government spending, signaling that taxpayer dollars must create good jobs.
Manufacturing and domestic content
The Inflation Reduction Act also takes several steps to ensure that climate investments create American manufacturing jobs. It does this through a series of investments, a few incentives, and one significant instance of a mandatory domestic content requirement for electric vehicles. Specifically, the legislation ties tax credits for electric vehicles to domestic content, and it invests tens of billions of dollars in grants and tax credits to help companies build out, reequip, or expand facilities to make new products for the clean economy or bolster existing manufacturing. It also invests billions of dollars to help manufacturers decarbonize and support the purchase of low-carbon materials.
Manufacturing jobs are often considered outright good jobs, but that is by no means a guarantee. In fact, as stated in a previous Center for American Progress report:
[W]orkers in the auto industry and other parts of the manufacturing industry have been struggling to hold on to their high standards since even before the EV transition began. The increased use of temporary workers, among other factors, is putting increased downward pressure on compensation in auto assembly and manufacturing more generally.23
The investments and policies in the Inflation Reduction Act are not associated with high-quality job requirements for manufacturing jobs, although there may be opportunities during implementation to encourage and potentially ensure that new manufacturing jobs are good jobs.
The Inflation Reduction Act is a major step toward ensuring that climate jobs are good jobs. It will have a lasting impact on the quality of jobs in a growing industry. In order for its job quality provisions to have the maximum impact, however, they need to be properly implemented. Policymakers have opportunities to take additional steps forward.
To meet the goals of increasing the number of employed apprentices, the Biden administration must take additional steps to increase the number of registered apprenticeships and diversify the apprenticeship pool. Several recent executive actions24 create an umbrella to connect the policy goals of broader apprenticeship expansion efforts and the apprenticeship goals of the Inflation Reduction Act, including the reversal of industry-recognized apprenticeship programs; a Trump-era executive order that weakened quality standards in apprenticeship programs; and the establishment of the Apprenticeship Ambassador Initiative, which convenes industry, labor, and community leaders with a goal of developing 460 new apprenticeship programs next year.25 Future efforts must connect the Inflation Reduction Act’s goal of increasing apprenticeship utilization to the mechanics of how to do so while creating an increasingly diverse pool of apprentices. This will require increased funding for pre-apprenticeships and vocational programs and support services to ensure recruitment of underrepresented workers, as well as strong articulation agreements between pre-apprenticeship programs and registered apprenticeship programs that partner with employers in the clean energy sector. It also requires setting, monitoring, and enforcing workplace harassment policies, demographic participation goals, and local and economic hire ordinances.
The U.S. Department of the Treasury is now tasked with issuing clear guidance on how contractors will show that they paid the prevailing wage and what constitutes a good-faith effort to hire apprentices, which would allow projects to receive exemptions to the apprenticeship utilization requirement while still receiving the full tax credit. The U.S. Department of Labor, meanwhile, must establish appropriate classification guidelines to ensure that the spirit of the legislation is not undercut by weaker or nonexistent laws in certain states and localities. Additionally, the U.S. secretary of energy has the discretion in a few key places in the legislation to define a “qualified manufacturer.” All efforts should be made to incorporate criteria that ensure job quality, including the free and fair right to collectively bargain, wages and benefits that meet at least the industry average, and adherence to strict safety and health standards.
Finally, while construction occupations are significant in the clean energy industry, they are not the only jobs necessary to meet the climate and energy goals of the Inflation Reduction Act. Subsidized jobs manufacturing, such as for electric vehicles, should also have job quality standards.26
Similarly, the Inflation Reduction Act does allow some potential workforce development expenditures, including “workforce development and training to support the maintenance, charging, fueling, and operation of zero-emission vehicles” and “investments in … workforce development that help reduce greenhouse gas emissions and other air pollutants.” It also provides funding for contractors to be trained in energy-efficient practices. However, it does not include comprehensive, dedicated workforce development funding or incentives to ensure the United States has a skilled, diverse workforce across all occupations—such as those in operations and maintenance, manufacturing, transit, and service—necessary for a clean energy future.
There are opportunities to do more to ensure that climate investments lead to high-quality jobs, but the Inflation Reduction Act is a model for how the government can invest taxpayer funds in a safer, cleaner future for the country while creating good jobs—and the training pathways to them. The act raises the standard when it comes to the quality of jobs and training pathways in the clean energy industry, as well as for clean energy and climate policy moving forward.
The authors would like to thank Kevin Reilly from the Laborers’ International Union of North America for his feedback on this report.