Prevailing wage requirements ensure that public investment in development results in high-quality workmanship and contributes to the economic well-being of the community by investing in its workforce. When requirements are in place to ensure that publicly-funded construction pays prevailing wage, then low-road contractors cannot underbid their competitors by paying lower wages or failing to offer benefits. Instead, prevailing wage requirements establish labor costs as a constant, ensuring that the selection of contractors for public construction projects is based on quality and efficiency.
The official prevailing wage for any given type of work reflects the market rate wages paid in that particular area. For federal construction projects, prevailing wage determinations are issued by the Department of Labor, and are calculated as the rate paid to at least 50% of workers in a construction occupation for a local area. If no single rate is paid to at least 50% of workers, then the average wage rate is established as the prevailing wage.
Many state and local governments also maintain prevailing wage standards for construction they fund or subsidize. According to the Economic Policy Institute, 32 states and the District of Columbia have prevailing wage laws.
Despite the claims of many opponents, most research concludes that prevailing wage requirements do not increase project costs. Labor costs make up a very small proportion of project costs overall, so even moderate wage increases have only a small impact on construction budgets. Prevailing wage projects are often constructed by higher-skilled, better-trained workers, so increased labor costs are offset by higher productivity.
Prevailing wage requirements can help leverage higher quality construction jobs, especially where the market is driven by high-road, high-quality contractors who pay good wages, offer benefits like health care and retirement, and allocate money for apprenticeship and training. Because prevailing wage calculations reflect the average level of job quality in the local market, in places where few contractors offer a good compensation package, prevailing wages will also be low.
In key markets, when combined with targeted hiring programs, prevailing wage requirements can help establish the foundation of a construction careers program.
On the ground, community-labor coalitions are fighting for prevailing wage requirements as a way of ensuring higher quality jobs.
In Milwaukee, the Good Jobs and Livable Neighborhoods Coalition (GJLN) notched two amazing victories.
- In 2005, GJLN won an agreement that includes prevailing wage requirements, among other things, for a major new downtown development. The Park East Redevelopment Compact (PERC) requires developers to pay prevailing wages for redevelopment of any parcel within the 16 acres owned by Milwaukee County. The coalition is now working to get prevailing wage and local hire requirements applied to all development projects subsidized by the City of Milwaukee. Read the PERC policy language
- In 2008, GJLN successfully organized for the MORE Ordinance, legislation that requires that any redevelopment project that receives $1 million or more in city financing must pay prevailing wage and must comply with a rigorous targeted hiring program. The MORE Ordinance will leverage hundreds of new prevailing wage jobs, especially in construction related to condominium and mixed-use development. Read the text of the MORE Ordinance
In Denver, FRESC: Good Jobs Strong Communities is in the midst of a campaign that applies prevailing wage to all developments subsidized through Tax Increment Financing (TIF).
Learn about the history of the campaign
"Prevailing Wages and Government Contracting Costs: A Review of the Research" Nooshin Mahalia, Economic Policy Institute, July 2008