Economy

Wisconsin’s Construction Industry Is In For A Rough Ride — And So Are Its Taxpayers

CREDIT: AP

Gov. Scott Walker (R-WI) in Iowa in June

About 24 hours before announcing his official White House candidacy, Wisconsin Gov. Scott Walker (R) made life a lot harder for people who sweat for a living.

“We may end up having to lay some people off,” Chris Martinez, owner of Dairyland Energy Solutions in Butler, WI, told ThinkProgress. “If we can’t keep the same workload, we can’t keep the same workforce.”

Martinez was referring to Walker’s repeal of the state’s 80-year-old prevailing wage law, a Depression-era policy that prevents taxpayer dollars from getting diverted away from local construction workers by less scrupulous contractors who undercut their wages.

Wisconsin’s repeal move comes after Republicans in several other states that were once union strongholds have expressed some interest in ditching the prevailing wage. The laws use data on what various types of construction workers earn in a given geographic area to ensure that public contracts don’t go to contractors who won’t meet that pay scale. Project costs do not drop when the laws are repealed, but the quality of the work the public receives for its dollar does – and so does the economic security of people in the building trades, whether they work on public projects or private ones.

Martinez opened Dairyland in 1998 after a decade on construction sites. Seventeen years of installing electrical, plumbing, and HVAC control systems later, he’s bracing for major changes in how his business meetings are going to go – and who he’s going to be facing off with to win contracts.

“I’m gonna be spending a lot more of my time educating the owners in terms of the differentials between what our workmanship is like and what it means in the future, versus our new competitors,” he said. “It’ll be my job to go out and educate people. But at the end of the day, if it’s only about that bottom line number instead of value for money, we’re going to lose some projects.”

The Wisconsin repeal measure leaves a minimal prevailing wage system intact for state-funded projects of a certain size — Martinez said a quarter of his state jobs would still be exempt under those caps — but repeals the system for all locally-funded construction work.

If somebody wants to undercut Dairyland, there isn’t much Martinez can do to stop them. Both contractors might know that the work required on a given project needs a $65 an hour mechanic. But there will be plenty of competitors willing to tell the buyer it can be done for $30 an hour instead.

“That’s where the most damage could come in public work,” he said. “Maybe that guy can identify and install a piece of conduit, but they can’t understand cradle-to-grave what it is they’re installing.”

Standards slip across the whole of a system as a result – and not always in the kinds of egregious ways that a school district will notice and raise a stink over. “Will my lights turn on? Well, yeah, but they didn’t wire it properly, so if you need to change something down the line it’s going to cost you a whole lot more,” Martinez said. “Because the person who’s going to do that change properly has to first figure out what the other guy did improperly.”

Contractors who underbid severely but can’t deliver on their promises can fold, move on, and maybe try again in the future as a slightly wiser business. “In the meantime, whoever they were doing the work for is left holding a project that’s half done or half-assed,” Martinez said. “I think the public entities, school districts and village councils, they’ve got a lot to lose in this as well.”

State-level prevailing wage laws have received a substantial amount of study over the years, and nearly all of the research has found that criticisms of the laws are wrong.

“The studies are pretty clear that the repeal of prevailing wage laws helps increase profits for companies that don’t have to pay their workers as much,” Center for American Progress economic policy expert David Madland said. “But they’re also clear that the government doesn’t necessarily benefit from any reduced costs. It’s sort of a one-way street.”

All but two studies of prevailing wage laws that had ever been conducted prior to 2008 found no change in public costs between the two systems, according to the Economic Policy Institute, which notes that one of the outlier studies was later proven invalid.

School construction costs in Kansas didn’t drop at all compared to nearby states after the 1987 repeal of the prevailing wage. A 2004 study in Missouri found that prevailing wage projects cost about $78 per square foot, compared to $75 in states without the safeguards – a statistically insignificant difference. And a followup study in 2011 found that costs were actually about $10 lower per square foot with prevailing wage laws than without them, thanks to the productivity gains and workmanship quality that higher wages produce.

Politicians who nonetheless insist that removing wage safeguards must necessarily reduce total costs “don’t understand that people are not widgets,” Madland said. “You get more out of them when you have higher pay, less turnover, and more skills development.”

Repealing a prevailing wage doesn’t just fail to lower taxpayer spending for public works. It can actually harm public coffers. Less income for construction workers means lower tax collections for the state and reduced consumer spending in the private economy. The Missouri studies estimated that between lost income to workers, lost tax revenue to the state, and lost economic activity for everyone, repeal would have taken at least $324 million out of the Missouri economy every year – and maybe as much as half a billion dollars annually.

Prevailing wages benefit both non-union workers and organized ones by providing all of them a floor value for their work. Without that floor, Milwaukee Building Trades Council president Dan Butkiewicz told ThinkProgress, construction jobs will likely stop providing the sort of economic security that’s traditionally come in exchange for often back-breaking work.

“You’re paid according to the wage of the skillset in which you’re working, so that you can buy homes, support the local economy, keep business going,” Butkiewicz said. But with the prevailing wage law out of the picture, that cycle breaks down.

“Somebody could go from making $25 an hour to making $10. Because there’s no floor. We live in a capitalist economy, and nobody’s going to pay you more if they don’t have to.” he said. “In the end you’ll erode neighborhoods and societies, because people will not be able to buy groceries and pay taxes in the places where they live.”

While non-union workers will also be hurt by repeal, the move is best understood as a further assault on labor’s power in the state according to Madland, who authored a book this year on the link between union strength and middle-class prosperity.

Since he was first elected, Walker has chipped away at various laws that allow workers to band together to keep wages high. Bargaining rights for public employees went first, followed soon after by a so-called “Right to Work” law that hampers organizing in the private sector. Signing the prevailing wage repeal “continues his march across every area where unions had some degree of influence,” Madland said.

The more unionized a state’s workforce, the better its people fair across various indicators of economic security for working-class families. As unions weaken, health insurance and wage policies that produce greater middle-class stability become vulnerable.

Some Wisconsin lawmakers have described the prevailing wage provisions of the budget as a reform measure rather than a repeal. The law bars prevailing wage rules for city, county, and regional government bodies in the state, but retains them for all but the smallest projects built with state funds.

Even this remnant of the 80-year-old system is losing its fangs. The budget ditches the old enforcement system where the Department of Workforce Development could assess double damages if an employer failed to pay the proper wage and overtime on a prevailing wage project. Now, the Department of Administration will oversee the system, and there will be no punitive consequences for wage and hour violations beyond giving the worker their back pay.

There will be plenty of companies on hand to take advantage of that relaxed enforcement system, Dairyland’s Martinez said. New firms crop up all the time to bid on contracts without understanding what a realistic cost estimate for a given job should be.

“Many of them are very shortsighted. They can grab a $40,000 contract today, and in their mind that’s $40,000 that’s in their pocket tomorrow,” Martinez said. “But in our mind, it’s not our money. It belongs to our technicians. It belongs to the taxing authorities. It belongs to our vendors. And then at the end of the day, if we do our jobs right, there is going to be 10 percent left behind that we can build our business further in the future.”

That 10 percent has to cover both his overhead and his profit. In a typical year where he grosses $3 million and pays about a quarter-million dollars in rent, utilities, and administrative salaries, Dairyland’s annual profit would be about $50,000 – and that’s before Walker’s prevailing wage repeal threatens to strip away much of the firm’s business.

Whenever he retires, Martinez hopes to pass Dairyland on to a competent team that will keep the company dedicated to doing quality work. But if the business changes from a competition to deliver the best work at the best price into a simple race to the bottom on wages, that won’t just hurt his bottom line. It’ll also undermine standards industry-wide, in part by making it harder for young would-be tradesman to serve as apprentices with firms like his and learn to do things the right way.

“In 20 years when I step away from this, I need to make sure I’ve got a team of good quality mechanics, managers, professionals,” he said. “Every step of the value chain has to be high caliber. If I short out the bread-earning piece of it by not teaching my mechanics through proper apprenticeships, then I’m really setting our company up for failure.”