Death of an Adjunct

By Stephen Herzenberg, Third and State

Appearing earlier this month on a radio program in Pittsburgh with labor historian Charles McCollester, I heard for the first time the story of Margaret Mary Vojtko, a 25-year adjunct faculty member at Duquesne University who died recently in poverty at the age of 83.

Two and a half years ago, the Keystone Research Center released the most comprehensive state report in the United States on the rising use of adjunct faculty at colleges and universities. The numbers were sobering. Even if they cobbled together a full-time (10 courses per year) load at multiple institutions, adjunct community college faculty in Pennsylvania earned only about $25,000 annually. Contingent faculty members and instructors taught 42% of the courses at all public colleges and universities in Pennsylvania (versus 49% nationally). Most part-time/adjunct faculty members in Pennsylvania public higher education received no health or pension benefits.

Given cuts in state funding for higher education since we wrote our report, the situation is surely worse today in Pennsylvania.

How do we avoid a future in which a majority of higher education faculty earn less than a “quality” wage – a wage sufficient to give teachers time to prepare lessons, establish office hours, and provide feedback that increases student learning?

It would help if we honored the rights of part-time/contingent faculty to join a union – starting, for example, at Margaret Mary’s Duquesne. One game-changing option would give all part-time and contingent faculty at publicly funded Pennsylvania higher education institutions the freedom to form a single statewide local union. This would enable part-time and contingent faculty to negotiate statewide wage and benefit standards and working conditions consistent with teaching excellence. (This type of geographically based union that lifts up low wages and benefits in service industries that can’t relocate – because they have to be near their “customers” – is exactly what is needed to rebuild the middle class generally in Pennsylvania and the United States. See my earlier posts on fast food workers and on the 50th Anniversary of Martin Luther King’s “I Have a Dream Speech.”)

State lawmakers also need to develop – and fund – a long-term plan for paying all higher education teachers a “quality wage.” In a world both moral and rational, this could be part of a broader plan that also makes post-secondary education affordable again for students, and marries online and in-person education to lower costs while maintaining quality.

This approach starts with values – the outcomes we want for students, faculty, and taxpayers – and then uses technology, collective problem-solving, and social negotiation to create a world that honors those values. Imagine the possibilities.

The story of Margaret Mary is a sad reminder that all public policy discussion should start from values – the world we want to create and, unfortunately, the world we want to avoid.

‘This Is What the Middle Class Looks Like’

By Stephen Herzenberg, Third and State

“This is what democracy looks like.” Even though this chant originated with the Seattle protests against the World Trade Organization (WTO), which haven’t yet led to major reforms, the phrase nonetheless captures the idea of a social movement that has crystallized its demands and has a better chance to succeed because of it. Other examples include the right to vote in the civil rights movement, or the fight to legalize gay marriage, a simple modern demand that culminates a fight for equality in all its dimensions.

One challenge in the U.S. fight for economic justice since inequality began to yawn wider in the 1970s has been the lack of a simple demand that either working people or elites thought could bring back the middle class. Having such a demand fuels social movements because it gives members of the movement confidence – conviction – that there is a way for the world to give them what they want. It also fuels social movements because it gives the broader society a way to let the protesters get a win.

The fast food workers engaging in one-day strikes across the country may be on the verge of crystallizing a simple demand to which their low-wage employers could accede – and, in the process, cracking the code to the next U.S. middle class.

Today’s story on these strikes in The New York Times says that the organizers aren’t actually clear yet on the path to victory. The demand is a $15-per-hour wage – a ticket to the middle class. But will progress result from a higher minimum wage, local living wage requirements for big chains, or companies themselves raising wages to get off the front page? (This is where you say in your best pompous pundit voice, “Well, ah, um, cough, good question.”)

Because these protesters have a practical, confident vision of the end point they want – an economy that pays lower-wage workers a middle-class wage (so what if Big Macs cost 50 cents more) – they have a good chance of finding the mechanism that can get them there and keep them there (or forcing the rest of us to figure out the mechanism).

I think the mechanism is pretty simple – it’s a union of all fast food workers in a metro area, across multiple companies. It would borrow heavily from building trades union models, such as electricians and carpenters. It would set area-wide wages, $15 an hour to start, as well as establish multi-employer health and pension plans. Most of the basic institutional solutions here were anticipated by SEIU’s Justice for Janitors campaigns going back to the late 1980s. Former KRC Research Director Howard Wial wrote a brilliant article about this back in 1993. Howard, another colleague, and I wrote a shorter version of the same pitch in the house organ of the Democratic Leadership Council (The New Democrat) in 1998. These ideas also overlap those in Dishing It Out, a history of waitress unions published by Dorothy Sue Cobble in 1991, in part because Cobble recognized the relevance of these unions to the contemporary low-wage service sector.

The same basic union model works in any service industry sector that cannot relocate because it has to be near customers – in other words, for virtually all the nation’s low-wage jobs. This includes workers in hotels, supermarkets, hardware stores, and other parts of retail; in non-fast-food restaurants; in child care, long-term care, and health care as a whole – doctors and some nurses are well paid, but too often workers on the lower end of the pay scale do not get middle-class wages even though their compensation is a small fraction of health-care costs. The generic formula: $15 per hour starting wage, decent benefits, and, if some businesses and policymakers are smart about it, more investment in training and the creation of career ladders.

This is what the middle class looks like.

If we can cross the Rubicon to this type of institutional solution and lock in $15 per hour in just one or two places, it will take off. We’ll have a mass variation on the old line from When Harry Met Sally – “I’ll have what she’s having.” Except, in this case, it will be, “I’ll have that kind of unionism New York, or Chicago, or St. Louis fast food workers are having.” This take-off would be analogous to when the United Auto Workers broke the code to establish a union at GM after the Flint sit-down strike, which paved the way for unionism at Chrysler, Ford, GE, Westinghouse, and in the steel industry. It paved the way for industry-wide wages and benefits through mass manufacturing. And the American middle class was born with employers paying, who knows, maybe twice what they paid before the upsurge.

So, with respect, I disagree with labor historian Nelson Lichtenstein who says in The New York Times that these protests won’t lead to unionization.

Of course, to paraphrase an old joke about economists and recessions (“I’ve predicted seven of the last three recessions”), I’ve predicted three of the last zero “New Deals for a New Economy.”

Still, I stand by my conviction. This IS what the middle class looks like. And it’s just right there, waiting to be born.

Toshi Seeger and Respect for the Working Man and Woman

By Stephen Herzenberg, Third and State

Toshi Seeger's obituary last week in The New York Times brought a smile to my face.

Toshi provided her husband, the folk singer Pete Seeger, with the organizational skills without which he would have not been so influential or commercially successful.

Toshi also kept him grounded. “I hate it when people romanticize him,” she said. “He’s like anybody good at his craft, like a good bulldozer operator.”

That simple sentiment works in both directions. It helped make sure Pete Seeger would not become too big for his britches. It also communicates deep respect for the bulldozer operator — and for hardworking people more generally.

One of many problems with the obscene income inequality that has emerged in the United States since the 1970s is that too many people in the "1%" (and the smaller groups at the very, very top) seem to have convinced themselves that they are not only deserving but also somehow different than — better than — other people.

Economic elites and the broader culture have also come to respect much less the hard work of regular folks — the nurse's aide and the sanitation worker, the back hoe operator and the warehouse worker, the truck driver and the child-care teacher. Legislators and advocates for local government communicate this, for example, every single time they seek to cut the state's prevailing wage for construction workers.

Along with their serial refusal to look at the ample evidence that paying construction workers decently does not increase construction costs, these proponents of weakening prevailing wage laws imply, again and again, "anyone off the street can do construction work just as well as experienced crafts workers." It's not true. It's deeply offensive. And it's sad that the people being so dismissive of other people's skills don't even realize how insulting they are being.

Maybe a few folks reading Toshi Seeger's obituary will pause briefly to reflect on the moral compass that led her to equate her phenomenally successful folk singer husband and a good bulldozer operator. That would be a good thing.

Imagine…A Minimum Wage Your Daughter Could Live On

By Stephen Herzenberg, Third and State

The Australian minimum wage this year is $15.96 per hour. I know this mostly because my daughter lives in Melbourne these days (not forever, I hope). When she arrived there 18 months ago, she got a job at a minimum-wage restaurant. She earned enough to cover her rent and other expenses.

What brought the idea of a much higher minimum wage to mind is a blog post from Dean Baker of the Center for Economic Policy Research. Dean estimates that the U.S. minimum wage today would be $16.54 per hour if it had kept pace with U.S. productivity growth since 1947.

For those with knowledge of economic history (both of us), a minimum wage that increases its buying power every year does not seem far fetched, even in the good old United States. The U.S. minimum wage DID increase with productivity growth from 1948 to 1968. This linkage (see Dean’s chart below) resulted from the combined impact of two mechanisms: manufacturing wages kept pace with productivity growth thanks to collective bargaining in mass manufacturing (starting with the famous auto industry “Treaty of Detroit” in 1948); and Congress periodically increased the minimum wage to bring it back up to 50% of the average manufacturing wage.

In recent decades, the most ambitious aspiration in U.S. political debate has been that the minimum wage keep pace with inflation (even Mitt Romney was for this briefly – after he was against it and before he wasn’t sure any more).

If you think about it for a second, a minimum wage that keeps pace with inflation is a fairly pathetic aspiration. It means that our lowest-wage workers get to have their living standards stay the same forever, even as the economic pie keeps growing with increases in productivity.

Wages – and minimum wages – that keep pace with productivity growth express a different and completely practical aspiration: the idea that workers at all levels should share in the expanding economic pie. Fair reward for hard work. Even sounds like a fundamental American value. Let’s get back to it. If we did, Charlotte might even come home.

March Job Numbers For Pennsylvania and CEO Pay

By Mark Price, Third and State

The Pennsylvania Department of Labor and Industry released new data for March on Pennsylvania's employment situation. According to the household survey, the unemployment rate edged down slightly to 7.5%, and the survey of employers showed healthy growth in nonfarm payrolls of 7,800 jobs.

As always, caution should be exercised in interpreting a month change in employment statistics.

In terms of levels, there were big gains in Leisure and Hospitality (7,000), Trade Transportation and Utilities (4,000) and Manufacturing (2,100). We will not have full information until the fall whether the job losses in the public sector will put a drag on employment growth in 2012, but the March data shows we are off to an uncomfortable start, with 2,500 jobs lost.

Over the last several months, Pennsylvania nonfarm payroll counts have been particularly volatile, showing big one-month gains and losses thanks to a combination of unusually warm weather and some technical issues. On average over the last six months, Pennsylvania has added just under 6,000 jobs a month. We need about 10,000 jobs a month to move back to full employment by March 2015 (three years from now).

While unemployment remains high today and for the foreseeable future, the distance between CEO pay and the pay of the typical worker reached an all time high in 2011.

Corporate CEOs are now making 380 times the salary of the average American worker, a record high and the biggest pay gap in the whole world, according to the 2011 AFL-CIO's Executive Paywatch.

 

Dumb and Dumber State Construction Policies

By Stephen Herzenberg, Third and State

I’ve got an idea: let’s employ low-wage, low-skill, and sometime out-of-state workers on small and medium-sized state-funded construction projects, with no benefit to taxpayers and negative impacts on local economies.

Sound like a stupid idea? That’s because it is.

Here’s the backdrop: Pennsylvania’s prevailing wage law requires that workers on state-funded construction projects be paid a wage in line with what most other workers in their trade are paid within a certain geographical area.

Research in peer-refereed academic publications shows that the law could be called the quality construction law because it helps ensure the use of skilled workers on state projects. Where prevailing wage laws exist, training investment, worker experience, wages, benefits, and safety levels are all higher than where these laws do not exist.

Overall construction costs are the same with or without prevailing wage laws. The prevailing wage law, however, makes it impossible for contractors that employ low-wage, out-of-state workers to win bids on state projects: it ensures that jobs go to local workers, who spend their money at local businesses.

More middle-class jobs, stronger local economies, higher quality construction, no cost to taxpayers: what’s not to like?

Unfortunately, some members of the Pennsylvania Legislature seem unwilling to leave well enough alone. Through House Bill 1329, these lawmakers want to make the prevailing wage law to apply to less state-funded construction work. How so? By exempting projects of less than $185,000 from prevailing wage standards. Currently, the law applies to all state-funded projects of $25,000 or higher.

Why one wants a threshold at all is not clear; eight states don’t have one. They have, instead, a clear policy of supporting a high-wage, high-skill approach to all state-funded construction.

Of the 32 states that have a prevailing wage law, only three have a threshold as high as that proposed in House Bill 1329.

Raising the threshold may not be as stupid a policy as eliminating the prevailing wage law altogether, or carving big parts of public construction (e.g., school projects) out of the law. But it’s still dumb.

For a complete list of our research and commentary on Prevailing Wage see our Prevailing Wage Issue page.

Prevailing Wage Opponents Fail to Look at the Research

The Final Part of a Three-part Series on Prevailing Wage by Mark Price and originally published at Third and State. Read Part 1. Read Part 2.

In the first two posts of this series, I explained why the numbers being tossed around by advocates of repealing prevailing wage don’t add up. I explained that the claims of cost-savings are not based on any actual experience and that they represent the result of laughable hypothetical, or “what if,” calculations. 

This leads to the most important point that the Pennsylvania School Boards Association, the Pennsylvania State Association of Boroughs, the Harrisburg Patriot-News Editorial Board and others keep missing: we can do much better than a hypothetical when assessing the impact of prevailing wage laws.

There is a body of research that examines construction costs (and other construction outcomes, like safety, training investment, wages, benefits, etc.) in states with and without prevailing wage laws as well as in states that eliminated prevailing wage laws. We don’t have to conjecture what “might” happen: we can look at what did happen. The preponderance of the evidence shows that prevailing wage laws do not raise construction costs.

Back in the late 1990s, Pennsylvania actually ran this real-world experiment itself — we lowered our prevailing wage levels, particularly in rural areas. That means we can look at what happened to construction costs. What happened is the same thing that has happened in other places — lower prevailing wages did not translate into lower construction costs. 

Specifically, the Keystone Research Center’s 1999 study of this late 1990s Pennsylvania policy experiment examined changes in public school construction bids when Pennsylvania’s prevailing wages were lowered substantially in rural areas. Keystone found no association between the number of occupations in which the prevailing wage was lowered and the price per square foot of school construction bids. If anything, construction bids appeared to go up more in areas where prevailing wages were lowered more.

Advocates of repeal often point to sympathetic construction managers in the public sector who testify, based on their expertise, that prevailing wage laws raise costs. Not only did the Keystone study find no statistical evidence of a cost difference during the period wages were lowered, but the study highlighted two revealing instances of construction managers making wild predictions that just didn’t come true:

 

The recent experience of two Pennsylvania school districts show that even increases in legally mandated prevailing wage and benefits rates do not necessarily increase public construction costs. In March 1999, after two months of legal uncertainty about required prevailing wage levels, [the Pennsylvania Department of Labor and Industry] began issuing prevailing wage rates that were higher than the 1999 rates. The Blue Mountain School District, in Schuylkill County, was planning to renovate its high school.  In April 1999, the school district’s construction manager estimated that construction costs would increase by about $670,000 as a result of the higher prevailing wage and benefit rates. But when bids for the project were opened on May 6, the low bids, which were expected to be about $15.1 million, came in at only about $13.8 million, almost 9 percent below the anticipated level. And in April, bids for a middle school construction project in Tamaqua, which used the same prevailing wage and benefit rates as the Blue Mountain bids, also came in under budget estimates.

 

Of course, anecdotes pro or con pale in comparison to careful statistical examination of large-scale data sets on actual construction costs. A study published in the Journal of Education Finance in spring 2002 explored the dependence of school construction costs across the United States from mid-1991 to mid-1999 on factors such as the state of the economy (measured by the level of unemployment), the size of the school, the season, and the existence of a prevailing wage law. The analysis found that public school construction costs:

  • rose 22% when the unemployment rate declined by half; 
  • fell 2.5% for bids accepted in the spring compared to bids accepted in the fall;
  • fell by 4.7% with a doubling of the school size, indicative of modest “economies of scale”; and 
  • did not go up or down a statistically significant amount based on the presence of a prevailing wage law. 

Another article from the Journal of Education Finance explored the impact of the establishment of prevailing wages in British Columbia at about 90% of the collectively bargained wage. This analysis, looking at a wide range of variables that potentially impact school construction costs, found that there was no statistically significant change in construction costs following establishment of a prevailing wage. 

In Michigan in the 1990s, school construction costs did not differ significantly during a period when the prevailing wage law was suspended temporarily compared to the period before and after. 

The reason researchers don’t observe differences in cost associated with prevailing wage laws is that higher wages in construction tend to reflect higher productivity. Family-sustaining wages, health coverage and good pensions attract and retain workers, leading to an accumulation of what economists call “human capital” — know-how that allows a skilled trades worker with years of experience to problem solve and do the job more quickly and right the first time. This know-how also translates into lower costs due to less need for supervisors and the higher retention of experienced workers which lowers recruitment and screening costs. Higher wages also promote the use of labor-saving technology and management practices that keep per-square-foot costs low.[1] 

While research finds that state prevailing wage laws do not significantly raise construction costs, these laws do lead to more investment in workforce training, lower injury rates, and higher wages and benefits (click here for a review). Thus, prevailing wage laws tend, over time, to lead to a more skilled and experienced workforce that is less likely to leave the industry, compensating for higher per-hour wage and benefit costs.

For a comprehensive review of the research literature on state prevailing wage laws, I highly recommend this work by Nooshin Mahalia. Unlike the Cato Institute journal, which the Patriot-News Editorial Board told us it relied on in supporting weakening the state prevailing wage law, Mahalia’s piece represents a full and careful review of all the literature. The Cato journal article, by contrast, ignores articles in peer-reviewed academic economic journals and relies on … wait for it … hypothetical calculations that support the ideological predisposition of the Cato Institute against regulation.

OK, we get it, that’s the Cato Institute’s excuse. What’s the excuse of the Pennsylvania School Boards Association or, for that matter, the Patriot-News Editorial Board, for ignoring the most credible research and evidence?


Footnote

[1] Steven G. Allen, “Unionized Construction Workers are More Productive,” Quarterly Journal of Economics, 99(2) (May 1984):251-274; Kevin Duncan and Mark J. Prus, “Prevailing Wage Laws and Construction Costs: Evidence from British Columbia’s Skills Development and Fair Wage Policy, in Hamid Azari-Rad, Peter Philips, and Mark J. Prus (eds), The Economics of Prevailing Wage Laws (London: Ashgate Publishing Limited, 2005); Dale Belman and Paula B. Voos, “Prevailing Wage Laws in Construction: The Costs of Repeal to Wisconsin” (Milwaukee: The Institute for Wisconsin’s Future, 1995.)

Prevailing Wage Opponents Fail Labor Market Statistics 101

Part Two of a Three-part Series on Prevailing Wage by Mark Price, originally published at Third and State. Read Part 1.

The overwhelming weight of evidence based on the actual cost of public construction projects shows that prevailing wage laws do not raise costs. Therefore, advocates of repealing the law in Pennsylvania ignore this evidence. Instead of “evidence-based policy,” we have “lack-of-evidence-based policy.” Go figure.

Repeal advocates use a hypothetical calculation that makes assumptions about cost, rather than empirically examining the relationship between higher wages and total construction costs. (As discussed here, even these hypothetical cost estimates don’t make sense once you apply real world data to how much labor costs represent of total construction cost.)

Another key ingredient in the hypothetical calculations used by proponents of repeal is the claim made most recently by the Pennsylvania State Association of Boroughs (PSAB) that “the prevailing wage is 30 percent to 60 percent higher than the average wage for the same occupation.”

This claim is based on an update of a flawed calculation by the Commonwealth Foundation. It compares the prevailing wage levels by trade as set by the Pennsylvania Department of Labor & Industry with the average wages for construction occupations reported in Occupational Employment Statistics (OES). The prevailing wages are 30% to 60% higher than the OES averages. 

The problem is, the Commonwealth Foundation/PSAB calculation is the proverbial apples-to-oranges comparison: it measures different portions of the construction industry.

OES data include wages paid to workers employed in the residential construction sector – smaller, less-complex projects than prisons, bridges, schools and other state-financed construction. Residential construction relies on workers less skilled and experienced than those needed for larger state projects.

Indicative of this skill gap in Pennsylvania is the fact that construction workers employed in nonresidential construction – most of which is private sector, not public – earn 52% more than construction workers in the residential construction sector. In other words, the gap between the occupational prevailing wages set by the Pennsylvania Department of Labor & Industry and average construction wages reported by OES reflects the wage gap between residential and nonresidential construction.[1] (See Table 1 below.)

Using OES data to estimate the potential savings from repealing the prevailing wage law greatly overstates the potential cost savings. Actual wage levels on state construction projects without prevailing wage laws would not fall 30% to 60%. Assuming such savings and assuming that any drop in wages would have no impact on worker skill and productivity lead to false claims of large savings from repealing prevailing wage. 

Of course, why use hypothetical calculations at all when we have actual data on what construction costs with and without prevailing wage laws? In my next post, I will review the research literature that examines actual cost data over time and between states to estimate whether prevailing wage laws influence total project cost.

On Wednesday: Prevailing Wage Opponents Fail to Look at the Research

Table 1. Average Weekly Wages in Residential and Nonresidential Construction in Pennsylvania
Construction Specialty Average Weekly Wage: Residential Average Weekly Wage: Nonresidential % Difference in Residential & Nonresidential Wages
Construction† $771 $1,170 52%
Building construction $796 $1,223 54%
Heavy and civil engineering construction ND $1,262  
Poured concrete structure $688 $943 37%
Steel and precast concrete $1,100 $1,126 2%
Framing $644 $985 53%
Masonry $636 $957 50%
Glass and glazing $888 $1,078 21%
Roofing $660 $942 43%
Siding $730 $946 30%
Other building exterior $818 $822 0%
Electrical and wiring $887 $1,232 39%
Plumbing and HVAC contractors $816 $1,245 53%
Other building equipment $879 $1,233 40%
Drywall and insulation $751 $1,093 46%
Painting and wall covering $639 $985 54%
Flooring $625 $988 58%
Tile and Terrrazzo $686 $994 45%
Finish carpentry contractors $718 $935 30%
Other building finishing contractors $691 $870 26%
Site preparation contractors $756 $987 31%
All other specialty trade contractors $696 $977 40%
Note. ND=No data
† Average weekly wages for residential and nonresidential construction are an employment weighted average of the average weekly wages paid in each subsector.
Source. Keystone Research Center based on 2010 Quarterly Census of Employment and Wages data.

Footnote

[1] Beyond the fact that they measure wages in a construction market that bears little resemblance to the public construction market, OES data have other limitations that make them unusable and inappropriate for purposes of comparison with prevailing wage rates. At the county level, OES data do not distinguish between construction occupations within the construction industry (residential plus nonresidential) and those in other industries. Construction occupations in all other industries – e.g., utilities and manufacturing, repair industries and building services – are all lumped together with the construction industry itself in the OES. As a result, at the local level, even more than the state level, OES data measure wages in a pool of jobs quite different from those on state construction work. The OES survey does not collect information on compensation paid in the form of health insurance and pension benefits. To overcome this limitation, PSAB uses a national data source to assume that fringe benefits represent 30.4% of reported wages in Pennsylvania.

Prevailing Wage Opponents Fail the Laugh Test

Part One of a Three-part Series on Prevailing Wage by Mark Price and originally published at Third and State.

Prevailing wage laws have long operated nationally and in states as a check against the tendency of the construction industry to degenerate into destructive wage and price competition. Such competition can drive skilled and experienced workers from the industry, reduce productivity and quality, and lead to poverty-level jobs, all without saving construction customers any money.

In an exhaustive review of the research on the impact of prevailing wages on contracting costs, Nooshin Mahalia concluded:

At this point in the evolution of the literature on the effect of prevailing wage regulations on government contract costs, the weight of the evidence is strongly on the side that there is no adverse impact. Almost all of the studies that have found otherwise use hypothetical models that fail to empirically address the question at hand. Moreover, the studies that have incorporated the full benefits of higher wages in public construction suggest that there are, in fact, substantial, calculable, positive benefits of prevailing wage laws.

Although the weight of evidence suggests prevailing wage laws do not raise costs, advocates for repealing the law in Pennsylvania continue to repeat some version of the following:

Prevailing Wage law also harms taxpayers, as it forces them to pay higher labor costs on public construction projects. Construction companies forced to pay union-inflated wages and benefits will pay upward of 30 percent more in labor costs for identical work on private sector projects. This adds a little more than 20 percent to the cost of every taxpayer-funded construction project – resulting in an estimated $1 billion cost for state and local taxpayers each year.

– Matthew J. Brouillette
President & CEO of the Commonwealth Foundation
March 22, 2011 

What is the source of this 20% saving claim? One source is Nathan Benefield, the research director of the Commonwealth Foundation, in this 2009 blog post.  

Benefield compared wages as measured in Occupational Employment Statistics (OES) to the Pennsylvania Department of Labor and Industry’s prevailing wage and concluded that prevailing wage rates are on average 37% higher (in a future post, I will address this issue directly). To estimate how this difference will affect total cost, Benefield assumed that labor represents 45% of total cost.

There are several problems with this analysis. 

Today I will address the first: it fails the laugh test. According to the 2007 Economic Census of Construction, labor costs represent no more than 24% of total construction costs in Pennsylvania. In road and bridge construction, much of which is funded by the state and thus impacted by prevailing wage regulations, labor costs represent no more than 21% of total cost.

If labor were 45% of total costs, and cutting wages and benefits were to have no impact on worker productivity, it would be possible to achieve a 20% reduction in total costs with a 37% reduction in labor costs. 

But only in Commonwealth Foundation World do labor costs account for 45% of construction costs. Tables 1A and 1B below show that if you use actual data on labor’s share of total cost, the wage declines necessary to achieve a 20% reduction in total construction cost are impossibly – laughably – large.  

In all construction, for example, labor costs are 24% of total costs. With labor costs at 24% of project costs, wages must fall by 70% to wring 20% out of total production cost, from $36.30 to $10.89 per hour for a carpenter in Philadelphia – that’s below even what Benefield claims Philadelphia carpenters make when not on a prevailing wage projects (see Table 1A).

With labor costs equal to 21% of project costs, as on road and bridge construction, wages would have to fall 80% to lower total costs by 20% (see Table 1B). Cement masons in Dauphin County employed on a road project would see their wages fall from $34.76 per hour to $6.95 per hour (the minimum hourly wage is currently $7.25).

Table 1. Changes in total cost as a function of the share of labor cost
 
A: Benefield’s calculation assuming labor represents 30% of total construction cost in PA
  With P.W. Without P.W. % Change
Labor Cost $240,000 $72,000 -70.00%
Non-Labor Cost $760,000 $760,000  
Total Cost $1,000,000 $832,000 -20.19%
 
B: Benefield’s calculation assuming labor represents 21% of total cost in road & bridge construction
  With P.W. Without P.W. % Change
Labor Cost $210,000 $42,000 -80.00%
Non-Labor Cost $790,000 $790,000  
Total Cost $1,000,000 $832,000 -20.19%
 
Note. The calculation of percent change is sensitive to the point of reference. The percent change in labor cost is calculated relative to the labor cost with a prevailing wage. The percent change in total cost is calculated in reference to total cost without a prevailing wage. To switch the point of reference is unconventional but necessary to remain consistent with the manner in which Benefield made his calculations. Calculating the percent change in total cost in the cases above where total cost with a prevailing wage is the point of reference results in a 17% decline in total costs.

Recall that Benefield’s laughable savings projections are the basis for the claim that the state can save $1 billion per year. Don’t count on it. 

On Tuesday: Prevailing Wage Oponents Fail Labor Market Stats 101

Must Read: The Inequality Governor Strikes Again

A blog post by Mark Price, originally published at Third and State.

One of the factors driving the increase in inequality prior to 2000 was the growing gap between the wages of colleges graduates and everyone else.

Therefore, a straightforward policy to limit the rise in inequality would open the door to college attendance for the children of low-income adults. However, as the figure below illustrates, gifted but low-income children are much less likely to complete college compared to similarly gifted but high-income children. In fact, these gifted, low-income children are as likely to complete college as the least academically gifted, high-income children.

The Pittsburgh Post-Gazette reports this morning that proposed budget cuts by the Corbett administration are likely to lead to fewer courses offered at satellite locations of the State System of Higher Education. Satellite locations are more likely to serve students from low-income families.

One portion of the University of Pittsburgh and the other state-related college campuses that will look different if state funding continues to decrease is their branch campuses, testified top administrators on Wednesday.

Those satellite locations provide a valuable public service in sparsely populated areas, often serving lower-income students who may not have other opportunities, said Pitt chancellor Mark Nordenberg and Penn State University president Rodney Erickson.

“They would be the most vulnerable units of the university if we are pushed to privatization,” Mr. Nordenberg told state senators during a second budget hearing.

Afterward, when pressed on the future of Pitt’s branches in Johnstown, Bradford, Titusville and Greensburg, Mr. Nordenberg declined to speculate as to whether any may need to be closed. But he did say private universities do not usually offer branch options and that many more minor changes to achieve cost savings already have been implemented.