January 14, 2013 Print

HB 1025: Prevailing wage expansion bad for state's economy

“Prevailing wage” laws fix wage rates on government construction projects. This means government pays above market rates for labor on these projects, forcing taxpayers to pay more and to get less when it comes to building schools and fixing roads. Rep. Jim Moeller (D-Vancouver) has introduced legislation that would expand the application of Washington’s prevailing wage law to certain private industries.

Rep. Moeller’s HB 1025 would expand the application of prevailing wage to include some--but not all--private beneficiaries of certain state policies. Most remarkably, the bill would apply prevailing wage to a few industries covered by tax deferrals and sales and use tax exemptions. For example, HB 1025 would expand prevailing wage to include work on anaerobic digesters and grain elevators and to many businesses involved with biodiesel (exempt from certain taxes according to RCW 82.08.900, 82.12.900, 82.08.820, 82.08.900, 82.12.955) but not to newspapers, insulin, or residential weatherization (which all receive similar exemptions; see RCW 82.08.0253, 82.08.985, 82.12.985, 82.08.998, 82.12.998).

The bill would also cover all the beneficiaries of tax deferrals under RCW 82.60 (Tax deferrals for investment projects in rural counties), 82.63 (Tax deferrals for high technology businesses), 82.75 (Tax deferrals for biotechnology and medical device manufacturing businesses), and 82.82 (Community empowerment zones -- Tax deferral program). (More information about these programs is available in the 2012 Tax Exemption Study published by the Department of Revenue.)

Prevailing wage policies originated in racism and continue because of special interests and economic ignorance. The Davis-Bacon Act creating the federal prevailing wage was designed to prevent black workers from winning employment on federally funded projects. Prevailing wage laws almost never establish actual market wages, but work to lock in higher union wage rates. This means that workers desperate for employment (as were the unemployed blacks who were originally targeted by Davis-Bacon) are unable to underbid current workers. Prevailing wage policies benefit labor union members and union organizations that, in turn, provide political support for politicians who back these policies.

While prevailing wage policies benefit workers on government projects, the policies are economically harmful because they force taxpayers to pay more for public works. This means all citizens get fewer new schools, filled potholes, and earthquake-retrofitted bridges than they would get without prevailing wage. They also make it harder for small businesses, new businesses, and the unemployed to compete with established firms and workers.

HB 1025 would to apply the state’s prevailing wage law to a few areas of private industry based on the rationale that they receive public benefits. Of course, the selected industries receive no more in benefits than many other areas of industry (and some people on the political left claim that every industry owes its existence to government, i.e. “you didn’t build that”). Should it become law, the precedent set by HB 1025 would clearly allow for expanding prevailing wage to many other industries.

While Washington's current prevailing wage law harms many, extending the policy to private industry would be far worse. Government can arbitrarily set wage rates on its own projects because government is a monopoly--it does not have the accountability that comes from competition. In the marketplace, prices matter. Drive up the price of a product and less of it will be purchased. Raise the price of production in one place and production will move somewhere else. Increase the price enough of something like biodiesel, and people will simply not buy it at all, since there are other products that can replace it.

HB 1025 would drive up costs in some state industries based on past legislative choices to give those industries, along with many others, tax incentives or other benefits. This would have negative economic consequences that would offset the increased wages for a few workers. If the legislature wants to make changes to the state's current prevailing wage law, the only sensible thing to do--particularly in a time of tight budgets--is to repeal the law altogether.

Update: Read more at The Olympia Report.


Trent England

Executive Vice President

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