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Study finds Indiana common construction wage repeal reduced worker pay, didn't save money on public works projects

Study finds Indiana common construction wage repeal reduced worker pay, didn't save money on public works projects

Central Elementary School Construction

James Gore, a brick layer with Kwiatkowski Masonry, lays concrete on a section of Central Elementary School's construction zone Nov. 13 in Valparaiso.

INDIANAPOLIS — When Gov. Mike Pence signed the 2015 repeal of Indiana's common construction wage statute, the Republican proclaimed that eliminating county minimum pay rates for public works projects would save the state and local governments money without reducing the paychecks of Hoosier workers.

"Wages on public projects should be set by the marketplace and not by government bureaucracy," Pence said at the time.

"By repealing the common construction wage, our state is putting hardworking taxpayers first, lessening the burden on cash-strapped local governments and schools, and opening doors of opportunity for small businesses across our state."

Three years later, the first in-depth, non-partisan analysis of the impact of Indiana's common construction wage repeal suggests that Pence was wrong.

The Midwest Economic Policy Institute, in a report provided exclusively to The Times, determined that following common wage repeal Hoosiers working in the construction industry are earning less than they were before, with no meaningful cost savings for Indiana taxpayers.

Worker pay, productivity decline

The institute used U.S. Department of Labor statistics for the four quarters preceding repeal of Indiana's common wage, also known as the prevailing wage, and the four quarters after to determine how the policy enacted by the Republican-controlled General Assembly affected 10 market outcomes.

The study found that construction wages fell in Indiana by an average of 8.5 percent following repeal of the common construction wage, with the lowest-paid workers seeing their paychecks drop by 15 percent.

Over the same period, construction wages in Illinois, Michigan and Ohio — which retained their prevailing wage laws — grew a combined 2.8 percent, according to the report.

The researchers, Frank Manzo IV, of the policy institute, and Kevin Duncan, of Colorado State University-Pueblo, explain that Indiana's common construction wage acted like a minimum wage for skilled construction workers, reducing income inequality by stabilizing the wage floor.

When it was removed not only did wages drop in Indiana, but the state's construction industry had to turn to individuals with fewer skills to fill positions that previously employed Hoosiers with training and credentials beyond a high school education.

The changes in the construction industry workforce negatively impacted worker productivity, which grew at a slower rate in Indiana compared to Illinois, Michigan and Ohio.

The study found worker productivity in Indiana only increased 4.4 percent between 2014 (before repeal) and 2016. It grew 9.8 percent over the same period in the neighboring states.

According to Manzo and Duncan, that means while public projects in Indiana appear to cost 2.1 percent less per hour, contractors and taxpayers are paying workers that are 5.3 percentage-points less productive per hour.

As a result, the relative decrease in worker productivity more than offsets any benefits from Indiana's lower wages, they said.

No public works savings

The researchers also analyzed public construction bid data in 14 northern Indiana counties, including Lake, Porter, LaPorte, Newton and Jasper, to determine how common construction wage repeal affected competition, union jobs and school construction.

Records show prior to repeal, public works projects received, on average, three bids.

Repeal proponents claimed repeal would increase competition. Though, post-repeal, governments saw little change, still receiving an average of 2.9 bids per project, according to the study.

Repeal supporters also claimed the common construction wage favored union contractors.

But, in fact, union businesses grew their market share post-repeal to 91 percent of market value, up from 87 percent.

Finally, the analysis found no significant change in the value of Indiana public school construction costs following repeal of the common construction wage.

"The early data from Indiana is unambiguous, and confirms what most peer-reviewed economists have been saying for decades," Duncan said.

"Repeal of prevailing wage laws does not save taxpayer dollars, but it shrinks middle class paychecks, hurts the economy, and causes problems ranging from lower productivity to higher turnover for the construction industry."

Legislative reaction

State Rep. Ed Soliday, R-Valparaiso, who joined the entire Northwest Indiana legislative delegation in voting against common wage repeal in 2015, said the study confirms what he thought all along: "It hasn't saved us a penny."

"When you have the common construction wage ... you hire local people and they spend their money locally," Soliday said.

"When you go out-of-state and so forth, and just chase price instead of the overall macroeconomic contribution, you wind up weakening your own community."

Soliday said instead of repeal he would have preferred lawmakers consider legislation to change how the common wage worked.

But he also doesn't anticipate the issue coming before the House again anytime soon because within the Republican supermajority Soliday said there's "an honest difference of opinion among respectable people."

House Speaker Brian Bosma, R-Indianapolis, was one of the co-sponsors of the common wage repeal law.

Bosma said last week that he has yet to read the policy institute study, but has seen plenty of anecdotal evidence that the law is working as intended.

"It has changed the cost of public projects, I know it has because that's part of my law practice," Bosma said.

"I'm not sure that the finances have changed on it, but the projects may have become bigger for the same amount of money."

The Indiana Department of Labor is due to submit to the General Assembly its own analysis of the five-year impact of common construction wage repeal in 2021.


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