Inside the repeal of Indiana's common construction wage law
A move to repeal Indiana’s common construction wage law triggered the largest demonstration at the Statehouse since a protest over a bill that some feared would legalize discrimination against gay people. But the showing did not sway lawmakers to save the law.
Hundreds of Hoosiers crowded the streets of Indianapolis as the state Senate voted last week to do away with an 80-year-old law that allows local governments to decide how much to pay contractors working on taxpayer-funded building projects worth more than $350,000.
The close vote sent the measure back to the state House of Representatives for tweaks and then to the desk of Gov. Mike Pence. Pence actively supported the repeal and has said he will sign it into law.
Where it started
Known as the “prevailing wage” in most other states, Indiana’s common construction wage law requires local panels—usually composed of representatives of labor unions and an association of non-union contractors —to decide which hourly wage is fair and typical in their own communities for each public works project involving an entity like a courthouse, school or government building. Highway, street and bridge construction projects by the Indiana Department of Transportation are exempt from the law.
The law started in 1935 as a way to keep out-of-state contractors from working in Indiana on state-funded construction projects. By setting a high enough minimum wage for specific projects, the law deterred bidders from undercutting local contractors with prices too low to offer a fair wage to workers hired for the jobs.
In addition, those in power at the time argued that without a minimum wage for each project, non-local companies would win jobs that should go to qualified locals.
Without a common wage, the free market—not panels of locals—would determine how much contractors are paid.
The case for repeal
Over the years, conservative politicians and union foes have said the system leads to higher wages, which cost taxpayers more money.
On the side of repealing the law are the Indiana Chamber of Commerce, the Americans for Prosperity and the Koch family, owners of Kansas-based Koch Industries, the second-largest privately owned U.S. company, which reportedly is a backer of the governor.
“I know there’s a lot of controversy with this,” State Sen. Carlin Yoder, who co-sponsored the bill, told local reporters. “But the bottom line is this is a bill that allows the free markets to work.”
Repeal advocates have estimated that eliminating the common wage will save taxpayers between 10% and 20% on construction projects.
The reasons to retain
Those savings, according to those who lobbied to salvage the law, will come out of the paychecks of the state’s workers.
In fact, they say that without a common wage, contractors will earn less money, pay fewer taxes, curtail their spending and hurt Indiana’s economy. And they argue that the law encouraged higher-quality construction work.
Some say if construction wages fall, Indiana will experience a labor shortage, as skilled craftsmen and laborers could leave the state in search of better-paying jobs.
“I do not think this is good for middle-class Indiana,” State Sen. Vaneta Becker said after the Senate vote. “In fact, I know it’s not good for middle class Indiana.”
Yoder told an Indianapolis TV station that allowing the free market to determine wages will make those paychecks more consistent—and less dependent on the judgment of people in local committees.
"There's no consensus on what [workers are] worth so it's not working," Yoder said. "Free markets will decide really what they are worth."
Republican Sen. Rodric Bray agreed. In a statement, he described a Morgan County common wage committee that decided in October 2014 to pay $28.40 an hour for one project, and of another panel in the same county that ordered $51.64 an hour for a similar project the following month. He said another project in the same county cost the government $1.2 million through the common wage process but would have rung up at $475,000 without it.
"This bill is really about protecting taxpayers and local communities,” he said. “For instance, schools will have more money in their transportation and capital improvement funds.”
Whether those savings will materialize is unclear, partly because the state does not keep track of how many projects the construction wage law affects, according to Indiana newspaper Greensburg Daily News.
In research prepared for the state Legislature, the Legislative Services Agency said studies on the impact of a repeal are “inconclusive.”
That report noted that a repeal would likely reduce labor costs at first, but the savings to schools, cities and other public bodies would likely be temporary.
“Some studies suggest that these types of prevailing wage systems lead to greater efficiency, quality and safety by providing for a stable, well-trained labor force,” the researchers wrote. “If such benefits were not realized due to the repeal of prevailing wage requirements, public institutions may experience an increase in costs relating to these factors in the long run.”
Plus, the report said, some studies have shown that the higher incomes supported by a prevailing wage system typically increase a community’s tax base because its residents earn higher incomes and spend more money.
Another report by the University of Utah found “little evidence to support the assertion that repealing common construction wage regulations, in fact, saves any money at all.”
The governor is expected to sign the bill into law this week.