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Prevailing Wages: Frequently Asked Questions

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See also: “A How-To Guide for Strengthening State and Local Prevailing Wage Laws: Raising Standards for Government-Funded Work

See also: “Raising the Bar: State and Local Governments Can Use Prevailing Industry Standards to Raise Minimum Standards for Private Sector Workers

What is a prevailing wage?

A prevailing wage is the basic hourly rate of wages and benefits paid to a number of similarly employed workers in a given geography. Policymakers can use prevailing compensation levels to set wage and benefit floors for workers in the locality—for example, construction workers on government-funded projects in Minneapolis1 or security guards providing government contracted services in New York City.2 Prevailing wage laws can ensure that government dollars do not undercut local wage and benefit standards, prevent a race to the bottom among publicly funded contractors, support good jobs, and provide good value to taxpayers.

Where are prevailing wages used?

The Davis-Bacon Act and Service Contract Act have long required contractors and subcontractors on federally funded or assisted construction and service contracts to pay locally prevailing wages and provide benefits.3 Additionally, roughly half of all U.S. states, as well as various cities, have their own prevailing wage laws.4

In recent years, lawmakers in several states—including Michigan, Indiana, West Virginia, Arkansas, Missouri, Wisconsin, and Kentucky—have moved to weaken or repeal those protections or preempt action by cities,5 often with negative economic outcomes and few cost savings.6 At the same time, other places are seeking to extend prevailing wage requirements to other types of work. For example, a number of municipalities in New Jersey have enacted requirements that building service workers at properties owned or leased by the government be paid prevailing wages.7 And in 2019, Maine amended its laws to require prevailing wages on all construction projects of $50,000 or more funded “in whole or in part” by state funds—not just those let by state agencies.8

What are the benefits of prevailing wage laws?

Workers, businesses, and taxpayers all benefit from these types of policies:

  • Support good wages and benefits. Research consistently shows that construction prevailing wage laws help blue-collar workers earn middle-class incomes.9 They also expand health insurance coverage and increase the share of workers with pension plans.10 Even in lower-paying occupations, such as janitorial or food service, prevailing wage laws can support compensation rates well above legislated minimums.11
  • Help close racial pay gaps. One statistical analysis found that the income gap between white and Black construction workers would be roughly 7 percentage points smaller if a state without a prevailing wage law instituted such a law.12 Prevailing wage laws may also be paired with targeted hire provisions that can help increase recruitment of women and Black and Latinx workers in the construction industry.13 Finally, prevailing wage laws can also help ensure that government spending does not erode standards in the service sector, where many jobs are held by Black, Latinx, and immigrant workers.14
  • Promote quality work and produce good value for taxpayers. Research shows that prevailing wage laws boost worker productivity, reduce injury rates, and increase apprenticeship training, which helps to address the shortage of skilled labor in construction.15 In addition, service sector wage standard laws have been shown to decrease turnover and improve service quality.16 Because they ensure a stable, well-qualified workforce, prevailing wage laws produce good value for taxpayers. Furthermore, numerous studies refute arguments that prevailing wages raise construction costs.17 In fact, research shows that these laws generate positive impacts for public budgets by increasing the amount of work performed by local contractors, thus reducing the leakage of local dollars,18 boosting state and local tax revenues,19 and making workers less reliant on government programs such as the Supplemental Nutrition Assistance Program (SNAP).20
  • Level the playing field for high-road employers. Prevailing wage requirements prevent low-road businesses from undercutting high-road employers committed to paying decent wages and benefits in bid competitions. Providing employers with a clear guideline for what is an acceptable rate of compensation signals to high-road employers that they can compete for and win government contracts. Experience shows that by raising standards for workers, governments can encourage more companies to bid for contracts.21
  • Protect union workers’ gains. Strong prevailing wage laws prevent low-road contractors from undermining higher standards that workers attain through collective bargaining. Indeed, prevailing wage laws tend to be particularly important for protecting market rates in areas with strong unions.22 Unionized workers and employers gain stability knowing that low-road contractors will not constantly undercut labor standards negotiated through private sector bargaining. Moreover, prevailing wage laws can help standardize compensation rates across union and nonunion worksites.
  • Promote sectoral standards. Because they extend market wages and benefits—which at times reflect collectively bargained rates—to all covered workers, prevailing wage laws are a key support for promoting high sectoral standards.23 Standardizing compensation across an industry leads to higher wages and benefits for more workers, moderates economic inequality, and reduces pay gaps across race and gender.24 It can also increase productivity by encouraging businesses to compete based on quality, rather than low labor costs.

Which industries could benefit from prevailing wage protections?

Policymakers can raise standards for millions of American workers by using prevailing wage laws to set standards across the construction and service sectors. Many people associate prevailing wages with the construction industry, since numerous federal, state, and local laws require that contractors and subcontractors on public works projects pay their workers local, prevailing wage rates. However, governments can also require prevailing wages for service workers, such as custodial staff, security guards, food service workers, call center workers, and temporary office service workers. Extending prevailing wage coverage to all government-funded service work is particularly important for raising standards for female workers and workers of color, who make up a substantial portion of the service workforce.25

Are prevailing wages only applicable to direct government contracts?

No. Policymakers have enacted prevailing wage laws that set compensation rates for a variety of government-funded work,26 including—but not limited to—direct government contracts, grants, loans, and tax incentives. Prevailing wage standards should also be applied to employees on service contracts at properties owned or leased by the government.

In addition, a few cities and states have enacted sectoral minimum wage laws—what the authors call prevailing industry standards27—that operate in a manner analogous to traditional prevailing wage laws but regulate private businesses that are not conducting government-funded or assisted work. For example, Washington, D.C., requires security guards in any commercial office building to be paid at least the prevailing wage.28

How do prevailing wage standards fit alongside minimum wages?

State and local policymakers can set wage and benefits standards in a variety of ways and may adopt multiple approaches to raise standards for workers across the income spectrum. Prevailing wage standards are useful even in places with high area-minimum wages because they come with required benefits supplements and can protect high standards for middle-income earners. Different wage-setting mechanisms serve different purposes:

  • Basic minimum standards laws include minimum wages, paid leave, and fair scheduling laws that apply equally to all workers, regardless of industry or occupation. These types of minimums help address undue hardship or dire economic need and are an essential tool for increasing basic standards for tens of millions of workers across the economy.29
  • Prevailing wage laws set wages and benefits rates based on market conditions, which are frequently higher than across-the-board minimum standards. Importantly, prevailing wage laws also establish a floor for government-funded work so that public contracting does not depress standards.

    These types of laws tend to produce the highest compensation rates when some employers in the industry already pay decent wages and benefits, as is often the case in areas with strong unions. For example, the prevailing hourly rate for electricians in Chicago is more than $85.30 In New York City, building cleaners on city service contracts earn more than $40 per hour in combined wages and benefits.31 But even in somewhat lower wage areas, benefit requirements can often ensure that prevailing compensation rates are higher than statutory minimums. For example, the combined wage and benefit rate that prevails for food service workers on federal contracts in Durham, North Carolina, is $15.45—nearly twice the state minimum wage of $7.25.32 And commercial painters on state public works projects in New Mexico—where the minimum wage is $9.00 per hour—earn a base wage of $17.00 per hour, plus $6.88 per hour in fringe benefits.33

Taken together, the approaches above can help raise standards for the lowest-wage workers while also supporting strong income growth throughout the labor market. In industries with endemic poverty wages and where workers face significant barriers to organizing, policymakers should consider adopting complimentary policies—such as workers’ boards34—that give workers a voice in determining workplace standards.

Malkie Wall is a research associate for Economic Policy team the Center for American Progress. David Madland is a senior fellow at the Center. Karla Walter is the senior director of Employment Policy at the Center.

Endnotes

  1. Minnesota Department of Labor and Industry, “Prevailing-Wage Information,” available at https://www.dli.mn.gov/business/employment-practices/prevailing-wage-information (last accessed December 2020).
  2. Office of the Comptroller, City of New York, “NYC Service Contractors Prevailing Wage and Living Wage Schedule,” available at https://comptroller.nyc.gov/wp-content/uploads/documents/NYCServiceContractorsSchedule-2019-2020.pdf (last accessed December 2020).
  3. U.S. Department of Labor, “Davis-Bacon and Related Acts,” available at https://www.dol.gov/agencies/whd/government-contracts/construction#:~:text=The%20Davis%2DBacon%20and%20Related,public%20buildings%20or%20public%20works (last accessed December 2020); U.S. Department of Labor, “McNamara-O’Hara Service Contract Act (SCA),” available at https://www.dol.gov/agencies/whd/government-contracts/service-contracts (last accessed December 2020).
  4. U.S. Department of Labor, “Dollar Threshold Amount for Contract Coverage,” available at  https://www.dol.gov/agencies/whd/state/prevailing-wages#:~:text=These%20States%20are%20Alabama%2C%20Arizona,2%2F%20California (last accessed December 2020).
  5. See David Eggert, “Michigan Legislature repeals state’s prevailing wage law,” The Associated Press, June 6, 2018, available at https://apnews.com/article/c160941605944ed7b5fb94c440d1871f; Frank Manzo IV and Kevin Duncan, “The Effects of Repealing Common Construction Wage in Indiana: Impacts on Ten Construction Market Outcomes” (Midwest Economic Policy Institute, 2018), available at https://faircontracting.org/wp-content/uploads/2018/03/mepi-csu-effects-of-repealing-common-construction-wage-in-indiana-final-1.pdf; Michael Kelsay and Frank Manzo IV, “The Impact of Repealing West Virginia’s Prevailing Wage Law: Economic Effects on the Construction Industry and Fiscal Effects on Construction Costs” (Midwest Economic Policy Institute, 2019), available at https://illinoisepi.files.wordpress.com/2019/05/umkc-mepi-impact-of-repealing-wvs-prevailing-wage-law-final.pdf; S. 601, 91st Arkansas General Assembly, Regular Sess. (April 6, 2017), available at https://www.arkleg.state.ar.us/Bills/Detail?ddBienniumSession=2017%2F2017R&measureno=SB601; KTTN News, “Construction wages cut in half by new prevailing wage rules (MO),” National Alliance for Fair Contracting, November 7, 2019, available at https://faircontracting.org/construction-wages-cut-in-half-by-new-prevailing-wage-rules-mo/; Frank Manzo and others, “The Effects of Repealing Prevailing Wage in Wisconsin: Impacts on Ten Construction Market Outcomes” (Midwest Economic Policy Institute, 2020), available at https://faircontracting.org/wp-content/uploads/2020/10/mepi-csu-wisconsin-repeal-study-final.pdf; The Associated Press, “Kentucky legislature repeals prevailing wage,” January 7, 2017, available at https://www.whas11.com/article/news/kentucky-legislature-repeals-prevailing-wage/417-383369152. For preemption, see Economic Policy Institute, “Worker rights preemption in the U.S.: A map of the campaign to suppress worker rights in the states,” available at https://www.epi.org/preemption-map/ (last accessed September 2020).
  6. Manzo and Duncan, “The Effects of Repealing Common Construction Wage in Indiana”; KTTN News, “Construction wages cut in half by new prevailing wage rules (MO)”; Michael Kelsay and Frank Manzo IV, “The Impact of Repealing West Virginia’s Prevailing Wage Law.”
  7. Karla Walter, Malkie Wall, and Alex Rowell, “A How-To Guide for Strengthening State and Local Prevailing Wage Laws: Raising Standards for Government-Funded Work” (Washington: Center for American Progress, 2020), available at https://www.americanprogress.org/?p=494146.
  8. Maine Legislature: Maine Revised Statutes, “Title 26: Labor and Industry, Chapter 15: Preference to Maine Works and Contractors,” available at https://legislature.maine.gov/statutes/26/title26sec1304.html (last accessed December 2020).
  9. Frank Manzo IV and Kevin Duncan, “An Examination of Minnesota’s Prevailing Wage Law: Effects on Costs, Training, and Economic Development” (Midwest Economic Policy Institute, 2018), available at https://faircontracting.org/wp-content/uploads/2018/07/mepi-csu-examination-of-minnesotas-prevailing-wage-law-final.pdf.
  10. Manzo and Duncan, “An Examination of Minnesota’s Prevailing Wage Law.”
  11. See, for example, prevailing rates for building cleaners and food service workers on service contracts in New York City. Office of the Comptroller, City of New York, “NYC Service Contractors Prevailing Wage and Living Wage Schedule.”
  12. Jill Manzo, Robert Bruno, and Frank Manzo IV, “State Prevailing Wage Laws Reduce Racial Income Gaps in Construction: Impacts by Trade, 2013–2015” (La Grange, IL: Illinois Economic Policy Institute, 2018), available at https://illinoisepi.files.wordpress.com/2018/02/ilepi-pmcr-prevailing-wage-reduces-racial-income-gaps-final.pdf.
  13. Karla Walter, “Getting Americans Back to Work and Good Jobs” (Washington: Center for American Progress, 2020), available at https://www.americanprogress.org/issues/economy/reports/2020/06/29/487075/getting-americans-back-work-good-jobs/.
  14. Hye Jin Rho, Hayley Brown, and Shawn Fremstad, “A Basic Demographic Profile of Workers in Frontline Industries” (Washington, Center for Economic and Policy Research, 2020), available at https://cepr.net/wp-content/uploads/2020/04/2020-04-Frontline-Workers.pdf.
  15. Peter Philips, “Kentucky’s Prevailing Wage Law: An Economic Impact Analysis” (Salt Lake City: University of Utah, 2014), available at http://www.faircontracting.org/wp-content/uploads/2014/02/Kentucky-Report-2014-Philips.pdf; Alison Dickson Quesada and others, “A Weakened State: The Economic and Social Impacts of Repeal of the Prevailing Wage Law in Illinois” (Chicago: University of Illinois at Urbana-Champaign, 2013), available at https://ler.illinois.edu/wp-content/uploads/2015/01/PWL_policy-brief_spreads041.pdf; Cihan Bilginsoy, “Wage Regulation and Training: The Impact of State Prevailing Wage Laws on Apprenticeship” (Salt Lake City: University of Utah Department of Economics, 2003), available at https://ideas.repec.org/p/uta/papers/2003_08.html; Manzo and Duncan, “An Examination of Minnesota’s Prevailing Wage Law.”
  16. Michael Reich, Peter Hall, and Ken Jacobs, “Living Wages and Economic Performance: The San Francisco Airport Model” (Berkeley, CA: Institute of Industrial Relations, 2003), available at https://laborcenter.berkeley.edu/pdf/2003/sfo_mar03.pdf.
  17. Matt Hinkel and Dale Belman, “Should Prevailing Wages Prevail? Reexamining the Effect of Prevailing Wage Laws on Affordable Housing Construction Costs” (East Lansing, MI: Institute for Construction Economic Research, 2020), available at https://faircontracting.org/wp-content/uploads/2020/01/Should-Prevailing-Wages-Prevail.pdf; Hamid Azari-Rad, Peter Philips, and Mark J. Prus, “State Prevailing Wage Laws and School Construction Costs,” Industrial Relations 42 (3) (2003): 445–447, available at https://onlinelibrary.wiley.com/doi/abs/10.1111/1468-232X.00299; Kevin Duncan and Jeffrey Waddoups, “Unintended Consequences of Nevada’s Ninety-Percent Prevailing Wage Rules,” Labor Studies Journal 45 (2) (2020): 166–185, available at https://journals.sagepub.com/doi/abs/10.1177/0160449X19897961.
  18. Working Partnerships USA, “Economic, Fiscal and Social Impacts of Prevailing Wage in San Jose, California” (San Jose, CA: 2011), available at https://www.wpusa.org/5-13-11%20prevailing_wage_brief.pdf.
  19. Manzo and Duncan, “An Examination of Minnesota’s Prevailing Wage Law.”
  20. Frank Manzo IV, Alex Lantsberg, and Kevin Duncan, “The Economic, Fiscal, and Social Impacts of State Prevailing Wage Laws: Choosing Between the High Road and the Low Road in the Construction Industry” (La Grange, IL: Illinois Economic Policy Institute and Smart Cities Prevail, 2016), available at https://illinoisepi.files.wordpress.com/2017/03/pw-national-impact-study-final2-9-16.pdf.
  21. Michael C. Rubenstein, “Impact of the Maryland Living Wage” (Annapolis, MD: Maryland Department of Legislative Services, 2008), available at http://dlslibrary.state.md.us/publications/OPA/I/IMLW_2008.pdf; Duncan and Waddoups, “Unintended Consequences of Nevada’s Ninety-Percent Prevailing Wage Rules.”
  22. Moreover, studies show that prevailing wage reductions reduce bid participation by union contractors. Duncan and Waddoups, “Unintended Consequences of Nevada’s Ninety-Percent Prevailing Wage Rules.”
  23. David Madland and Malkie Wall, “What Is Sectoral Bargaining” (Washington: Center for American Progress, 2020), available at https://www.americanprogressaction.org/issues/economy/news/2020/03/02/176857/what-is-sectoral-bargaining/.
  24. David Madland, “How to Promote Sectoral Bargaining in the United States” (Washington: Center for American Progress Action Fund, 2019), available at https://www.americanprogressaction.org/issues/economy/reports/2019/07/10/174385/promote-sectoral-bargaining-united-states/; David Madland and Alex Rowell, “Combatting Pay Gaps with Unions and Expanded Collective Bargaining” (Washington: Center for American Progress Action Fund, 2018), available at https://www.americanprogressaction.org/issues/economy/reports/2018/06/28/170469/combating-pay-gaps-unions-expanded-collective-bargaining/.
  25. Data USA, “Service Occupations,” available at https://datausa.io/profile/soc/service-occupations#demographics (last accessed December 2020).
  26. Walter, Wall, and Rowell, “A How-To Guide for Strengthening State and Local Prevailing Wage Laws for Government-Funded Work.”
  27. David Madland, Malkie Wall, and Alex Rowell, “Raising the Bar: State and Local Governments Can Use Prevailing Industry Standards to Raise Minimum Standards for Private Sector Workers” (Washington: Center for American Progress, 2020), available at https://www.americanprogress.org/?p=494142
  28. Code of the District of Columbia, “Chapter 10. Minimum Wages,” available at https://code.dccouncil.us/dc/council/code/titles/32/chapters/10/ (last accessed December 2020).
  29. David Cooper, “Raising the federal wage to $15 by 2024 would lift pay for nearly 40 million workers” (Washington: Economic Policy Institute, 2019), available at https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2024-would-lift-pay-for-nearly-40-million-workers/.
  30. Illinois.gov, “Cook County Prevailing Wage Rates posted on 7/15/2019,” available at https://www2.illinois.gov/idol/Laws-Rules/CONMED/Documents/2019%20Rates/July%2015/Cook.pdf (last accessed December 2020).
  31. Office of the Comptroller, City of New York, “Building Service Employee Prevailing Wage Schedule,” available at https://comptroller.nyc.gov/wp-content/uploads/documents/BuildingServiceEmployeeSchedule-2020-2021.pdf (last accessed December 2020).
  32. Sam.gov, “Wage Determination: Service Contract Act # 2015-4376,” available at https://beta.sam.gov/wage-determination/2015-4376/14?index=wd&is_active=true&date_filter_index=0&date_rad_selection=date&wdType=sca&state=NC&county=16288&page=1 (last accessed December 2020).
  33. New Mexico Department of Workforce Solutions, “Type “A” – Street, Highway, Utility and Light Engineering,” available at https://www.dws.state.nm.us/Portals/0/DM/LaborRelations/Prevailing_Wage_Poster_A_2020.pdf (last accessed December 2020).
  34. Kate Andrias, David Madland, and Malkie Wall, “A How-To Guide for State and Local Prevailing Workers’ Boards” (Washington: Center for American Progress, 2019), available at https://www.americanprogress.org/issues/economy/reports/2019/12/11/478539/guide-state-local-workers-boards/.