How the Prevailing Wage Law Stopped Progress

Recently, with encouragement from the County Executive, Tom Gordon, the New Castle County Council voted 7 to 6 against using a $100,000 contribution from the Friends of Rockwood to renovate the county-owned Rockwood Mansion. The argument was that such construction repairs should be subject to Delaware’s prevailing wage system.

That argument is flawed for two reasons.

First, the argument doesn’t coincide with state law. Second, the current Delaware prevailing wage system is methodologically flawed, redundant, a waste to taxpayers, and improper use of tax funds.

First, under Delaware’s statutes, prevailing rates must be paid on new construction projects costing more than $100,000 and on alteration, repair, renovation, rehabilitation, demolition or reconstruction projects costing more than $15,000. For a project to be covered by the law, the State or any subdivision thereof must be a party to the public works contract; and, the State must have appropriated any part of the funds.

Because the Rockwood Mansion is county-owned, it is fair to say that the County is a party to any works contract. It is false to claim in this instance, however, that the County has appropriated any part of the funds.

Second, two years ago, funded by a foundation grant, CRI conducted a thorough analysis of Delaware’s prevailing wage system’s methodology.

The CRI research (http://www.caesarrodney.org/index.cfm?ref=28200&ref2=1) found that the prevailing wage methodology conducted by the Delaware Department of Labor was seriously flawed and over stated construction wages by occupation in Delaware by an average of 40%. Currently, for example, the prevailing wage for a carpenter working in New Castle County is $50.06, a painter is $42.02, and a laborer $38.30.

Using Delaware’s FY-11 capital budget, the research estimated construction savings from paying market construction wages would be approximately $19 million for school projects, $96 million for transportation projects, and $135 million overall. The funds saved could have been used to generate more capital improvements resulting in more construction output, a lower unemployment rate for construction workers, and less strain on Delaware’s unemployment fund.

To add insult to injury, every six months under a Federal contract with the U.S. Bureau of Labor Statistics, the Delaware Department of Labor systematically collects detailed construction occupational wage data (the Occupational Employment Statistics survey).

Shifting to the OES survey data would save money and staff time for Delaware’s Department of Labor while improving data quality. Compared to the Delaware prevailing wage survey data, the OES has substantially less sample design and response bias, a larger sample size, and fewer methodological errors. Moreover, Delaware taxpayers foot the bill for the state’s prevailing wage survey each year, while the U.S. Bureau of Labor Statistics pays Delaware to conduct the OES survey.

Why then this strange vote by the NCC Council? The most obvious explanation would be pressure from the unions. According to the latest data from the U.S. Bureau of Labor Statistics, just over 10% of Delaware’s workers are union members, with only 2% of private sector workers being union members.

The Delaware economy is in a slump, and especially the construction industry. It its latest budget, NCC County government projects four straight years of operating deficits. These realities make the position of the County on the generous gift from the Rockwood Mansion Friends even more difficult to understand.
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About the Contributor

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John Stapleford

John holds a Ph.D. in urban and regional economics (University
of Delaware), M.A. in government and planning (Southern Illinois University) and B.S. in chemistry (Denison University). He is director of the Center for Economic Policy and Analysis for the Caesar Rodney Institute and a professor emeritus of economic development from Eastern University. He most recently worked as an associate director and senior economist with Moody’s Economy.com. John was Director of the Bureau of Economic Research at the University of Delaware and the co-founder of the Delaware Small Business Development Center. He is author of a book, numerous articles in professional journals, and over one hundred applied research monographs.