By D. Eric Schansberg, Ph.D., and member of the Bluegrass Institute Board of Scholars
A prevailing wage is a legal arrangement designed to set minimum compensation for public-sector construction workers at rates above those determined by market supply and demand – typically at rates near “prevailing” compensation for union workers.
Modern-day legislation establishing prevailing – or “common” – wages are state and local versions of the 1931 federal Davis-Bacon Act, and currently exist in 32 states including Kentucky and in six of its seven neighboring states.
The Davis-Bacon Act requires prevailing wages to be imposed on taxpayers for any federal project with a budget over a mere $2,000. However, Kentucky’s minimum project size for imposing prevailing wage laws is significantly higher – though still not incredibly steep – at $250,000.
By definition, prevailing wages are a minimum wage applied to one segment of the labor market. It benefits employees who are able to keep their jobs, but imposes a burden on employers and taxpayers.
Though it’s difficult to calculate the exact extent that prevailing-wage laws increase aggregate costs to overall economic activity, artificially high wages clearly increase project costs significantly on a case-by-case basis.