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Study Refutes Claims About Prevailing Wage Laws

A study by America’s Building Trades Unions examined a sample of bids by union and nonunion contractors on prevailing wage projects in the San Francisco Bay area. Results provided the first evidence examining the effects of prevailing wage regulations on contractor participation and bidding behavior. Prevailing wage regulations does not decrease the number of  bidders or alter the bidding behavior of contractors relative to the engineer’s estimate of the project. Also, the study proved that in this heavily unionized area, the presence of prevailing wage regulations did not discourage the participation of nonunion contractors.

In general, the effects of prevailing wage regulations on the operations of construction labor markets has been the subject of considerable research, but the literature has never addressed the question of the effect of regulations on participation and bidding behavior as this study has. The only empirical study of this issue is a survey from 2001 of opinions of public officials in Kentucky who agreed with the statement: “prevailing wages decrease the number of bidders” on a public project; “only six city, county, school or utility officials said that prevailing wage increases the number of bidders.” From this most recent study, the data pointed to the fact that there is no evidence that contractors change their bidding behavior based on whether or not they were bidding on a prevailing wage project. It goes on to conclude that there is no evidence that prevailing wage regulations reduce the number of bidders on projects, discourage nonunion contractors from bidding on projects, alter the dynamics of the bidding project, or fatten the bid relative to the engineer’s estimate.

Read the entire study by Jaewhan Kim, Chang Kuo-Liang, and Peter Philips.

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