HOW UNLEASHING COMPETITION BENEFITS BLACK AND HISPANIC WORKERS

Wisconsin Gov. Scott Walker came to national prominence through his firm commitment to protect taxpayers by standing up to public sector union’s onerous contracts and unsustainable compensation packages. But now he appears to have checked out of the conversation, occupied with other matters as union forces seek to block legislation reforming “prevailing wage” laws. Reforming these laws would benefit African American and Hispanic workers by encouraging competition for government contracts.

Prevailing wage laws mandate that government contractors pay their employees wages and benefits that are “prevailing” in a given industry or region. In practice, these “prevailing wage” government calculations are based on flawed methodology that increases labor costs above and beyond competitive prices. A recent Wisconsin Taxpayers Alliance study details the methodological problems with the state’s approach, and estimates state and local governments in the Badger State were overcharged $300 million on vertical construction projects alone in 2014 because of the state’s prevailing wage law. The Wisconsin Institute for Law and Liberty estimated school districts overpaid as much as $244.8 million during the past five years.

In addition to the waste they produce, these increased costs are disproportionately likely to hurt non-white contractors. Wisconsin (along with other states) shields union contractors from outside bidders, which are often smaller in size and more likely to be black- or Hispanic-owned firms. These firms have greater difficulty competing for contracts because they don’t have the economies of scale to comply with prevailing wage mandates.

“[T]he small overall impact of law repeal masks substantial differences in outcomes for different groups of construction employees,” write researchers Daniel Kessler of Stanford and Lawrence Katz of Harvard. “Repeal is associated with a sizable reduction in the union wage premium and an appreciable narrowing of the black/non-black wage differential for construction workers.”

Wisconsin’s laws mirror the federal prevailing wage law, the Davis-Bacon Act, signed by President Herbert Hoover in the 1930s and still in effect today. Davis-Bacon mandates that federal contractor wages and benefits be “prevailing for the corresponding classes of laborers and mechanics.” The outcome was bound to be discriminatory. The Institute for Justice gives historical context on the troubling racial and class history of the Davis-Bacon Act.

“The Act was passed with the specific intent of preventing non-unionized black and immigrant laborers from competing with unionized white workers for scarce jobs during the Depression,” the Institute reports. “This invidious law continues to have devastating discriminatory effects, as minorities tend to be vastly underrepresented in highly unionized skilled trades, and over-represented in the pool of unskilled workers who would benefit, if the prevailing wage laws were abolished.”

prevaling wage 1

Source: Economic Policy Institute

While society has certainly progressed beyond purposeful discrimination, in practice too often blacks and Hispanics continue to be priced out of competition for government contracts. This is troubling for non-white families, which are hurting in the state. In 2014, unemployment among African-Americans was 20 percent in Wisconsin. This was the worst rate in the country for black workers, according to a study by the left-leaning Economic Policy Institute, based on Current Population Survey data. The study found that Wisconsin’s black unemployment rate was nearly three times higher than the highest state white unemployment rate (Nevada at 7 percent) and significantly higher than the national black unemployment rate of 11 percent. Among Hispanics, the EPI also found that Wisconsin had the sharpest increase in the unemployment rate from 2013 through 2014.

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Source: Economic Policy Institute

While certainly these troubling trends are unlikely to be entirely cured by government contracting, the “prevailing wage” laws certainly aren’t helping matters. Some Wisconsin legislators need to reform these laws and help expand opportunity through the power of healthy competition.