What (Exactly) Is an Indiana ‘Prevailing’ Wage?

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.” — Adam Smith, 1776

BEGINNING THIS YEAR, the Indiana legislature has ruled that only construction projects valued at more than $350,000 are covered by the state’s prevailing-wage law. All right, but why $350,000? Why not $350 million? Or $350? Or zero?

Because the law is arbitrary, capricious and immoral, that’s why. And if a GOP super majority led by a conservative governor can’t repeal it utterly, then we might as well all vote Democratic and hope to be cut in on the deal, to join those who are prevailing.

But let’s not get ahead of ourselves (we’re planning a seminar on the topic in Indianapolis July 9). First, we need to know the history of this particular usurpation.

There of course was the infamous 1931 speech on the floor of the House of Representatives by Rep. William Upshaw:

“You will not think that a southern man is more than human if he smiles over the fact of your reaction to that real problem you are confronted with in any community with a superabundance or large aggregation of negro labor.”

You get the idea: A “prevailing” wage, please know, doesn’t have anything to do with an honest day’s work for an honest day’s pay.

What the law did then for federal contracts and what it does today for Indiana contracts is just this: politically manipulate the market for labor, whatever its color. It does so in a way that ensures that some people (unionists) have an employment advantage over the hapless rest.

That, of course, is a theft, however widely unreported. And once institutionalized in a state budget, it becomes a double theft — from an employer, first, and then from a taxpayer. And going further, an economists can show you there are hidden social costs in market distortions, the communication of trade skills, etc.

In nearby Michigan, for instance, where the law was temporarily ruled invalid for 30 months, a study found that 11,000 new jobs were created during that period. Other findings in the same study:

  • The law added at least $275 million annually to the cost of Michigan’s capital outlays, about five percent of the revenues raised by that state’s individual income tax.
  • African-Americans in Michigan were less than 50 percent as well represented in the construction industry as whites, which the study’s author argued was both theoretical and empirical evidence that the prevailing wage still promotes racial discrimination.
  •  States without prevailing wage laws (there are 19) had net in-migration of over 2.5 million persons from 1990 to 1996.
  • In states with strong prevailing-wage laws, out-migration totaled 2.7 million and poverty rates were higher.

And in 2002, the Ohio Legislative Service Commission concluded that Ohio schools by allowing competitive bidding saved $487.9 million, which was 10.7 percent of construction spending. (Some estimate that the prevailing-wage “tax” on a local project, especially in rural areas, can be as high as 30 percent.)

Similar studies in Indiana might or might not give similar results. But government waste and inefficiency is not the point here. It is that the prevailing wage constitutes a moral wrong. That would be true even if it were to save taxpayers money, preserve “good” jobs, or improve the quality of construction (and it doesn’t do any of that).

George Leef, writing for the Cato Institute, put this moral wrong in an economic context: “The prevailing wage is merely rent-seeking by a politically potent interest group, using its influence to use the law to enforce a price-fixing scheme.”

You might put it more personally. The Indiana law takes from you and your neighbors the liberty to use labor as you wish, a God-give right surely equal to that of owning property or speaking freely.

Is this OK with your Indiana GOP? Apparently so. There’s no movement among the super-majoritarians for repeal. Nor can it be found on the governor’s “road map” for progress.

Look, this isn’t a difficult public-policy question. Historically, it has always been a bad idea for any government to assist any group of sellers in what is an eternal human desire to fix prices and stifle competition. That is especially true for the government of a constitutional republic dedicated to free markets.

So the Indiana GOP’s reticence is puzzling — except, that is, for one last observation. There is a logical reason, albeit a common and mean reason, for a Republican officeholder in 2013 to sit silent on this issue. It is self-interest, fear of being made the target of the special interests so prevalent in this supposedly conservative state.

And that is the most worrisome realization of all: A historically Red state, a GOP super majority and a reform-minded governorship be damned, we have met corruption and it is us.

Resources

David Bernstein. “The Davis-Bacon Act: Let’s Bring Jim Crow to an End.” Cato Institute, Dec. 26, 2012.

Richard Vedder. “Michigan’s Prevailing Wage Law and Its Effects on Government Spending and Construction Employment. The Mackinac Center for Public Policy, Midland, Michigan.

The Ohio Legislative Service Committee Senate Bill 102 Report: 22 25.

George Leef. “Prevailing Wage Laws: Public Interest or Special Interest Legislation?” The Cato Journal, Winter 2010.

This post was tagged under: Indiana Politics

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