Guest column: Prevailing wages increase costs, not quality

By John Mullin

Bob Emery’s column last week touched on several liberal, or as liberals prefer to be called, “progressive” ideas. His primary focus was prevailing wage, so let’s start there. The column recited all the liberal prevailing wage talking points, claiming that paying prevailing wage avoids “fly-by-night contractors,” “substandard projects” and “enormous costs in the long run.”

John Mullin

I’ve heard this before and it seems funny to me that they are typically uttered by people who have probably never set foot on a construction site and undoubtedly never signed the front side of a paycheck. The prevailing wage talking points do not stand up to even a superficial scrutiny.

Regardless of how prevailing wage is defined by the state Office of Contract Compliance, they are union wages — and they are far from prevalent. The column correctly states that prevailing wage is paid on projects funded by federal, state, school districts, or a general law city funds. Why is this? Because of the headlock, so to speak, that unions have in Washington D.C., and Sacramento.

My painting company does prevailing wage work. When our painters work on a prevailing wage job, they are paid $41.27 per hour, more than double their market-based wage. And, no surprise, prevailing wage adds 30 to 35 percent to our bid.

But we are the same company and send the same employees to prevailing wage and non-prevailing wage jobs. Paying the same employee double his regular wage does nothing to change the quality of his work and does nothing to assure a quality project.

I watched unions lose the residential construction market in the 1970s because they wouldn’t recognize that the wages, like all goods and services in a free market, are determined by supply and demand. This is the most basic of economic principles, yet it appears to be lost on those who support the setting and fixing of prices by any other means.

Adding my side note to the column’s side note regarding Senate Bill 7, cities can and are adopting charters that do not require paying prevailing wage. SB7, sponsored by the Labor Federation, will withhold state funds for two years from cities that award a contract that does not include prevailing wages. The Emery column calls this closing a loophole. I think it is an obnoxious intrusion into the local control of local issues.

The other argument presented in the column is that paying a “decent and livable wage” is good for the community and helps raise the standard of living. This is classic liberal economic theory that government can create wealth and prosperity by taking money from one and giving it to another – giving it either in the form of a gift or in the form of dictating wages that are not sustainable in the marketplace.

This is a theory that has failed every place it’s been tried, yet remains the centerpiece of “progressive” thought. Come to think of it, it’s pretty ironic that many “progressive” ideas are 40 years old. . . and failed.

Mullin is a longtime Poway resident and small-business owner. He serves on the Poway City Council but stresses that this column reflects only his personal views.

Related posts:

  1. Emery: Just what is a ‘prevailing wage?’
  2. Guest column: Funding cuts to nursing facilities impact us all

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Posted by Steve Dreyer on Aug 28 2013. Filed under Editorial, Opinion. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

33 Comments for “Guest column: Prevailing wages increase costs, not quality”

  1. Mr snruB

    Um, if you don't believe in prevailing wage, why does your company do prevailing wage work? Are you unwilling to lose business just for the sake of integrity and standing up for your principles?

    • Dan Marc

      I'm sure Mr. Mullin does prevailing wage work for the same reason he does non-prevailing wage work – so that he and his workers can all get a paycheck. When doing business, I'm sure his integrity is focused on practicing sound business principals while insuring the ongoing viability of his company in the marketplace.

      I'm sure he is quite unwilling to put his business at risk by boycotting a segment of his marketplace just to prove the sincerity of his opinion about prevailing wages in a newspaper column. A right thinking business owner, because of his integrity and commitment to his proper principles, wouldn't do that.

      • R. Wright

        So it's OK to go against one's principles if there's money involved? I think NOT. You hit the nail on the head: it's all about the paycheck. I might not be a super-genius, but I know unprincipled behavior when I see it.

        For an example of principles, see Chick-fil-A: They don't support gay marriage and are willing to suffer the reduction in business that results from sticking to their principles. I don't agree with Chick-fil-A's views, but they are by no means unprincipled.

        Closer to home, I had a neighbor who was a lifelong GM buyer. He disagreed with the government bailout of GM and has not bought another GM product since. That's another example of accepting the consequences of adhering to one's principles.

        • PeterD

          I think Mr. Mullin's principles are perfectly fine and very well thought out. He is playing by the rules as they are, and trying his best to change them to be more fair to everyone. We live in a democracy and you don't just pick up your marbles and go home because you don't like the rules of the game.

          • R. Wright

            That might be how YOU view things, but I personally refuse to support or profit from things I am opposed to. Apparently prevailing wages bother Mr Mullin, but not enough to make him refuse to accept what he claims are wasted tax dollars. Classy.

  2. The answer is simple — he is willing to pay prevailing wage because he can pass the extra cost along to the final buyer, usually the taxpayer.

    The contractor would be willing to pay labor $1,000 an hour if the project still provides him a reasonable profit. It all falls on the taxpayer. Labor is just a cost of doing business, and although the contractor writes the check, he gets it back from the taxpayer. It all gets added to the cost the final bill payer writes.

    The contractor is also a taxpayer, and in this case one who just hates to see the taxpayer ripped off by paying well above market rates.

  3. Tom Yarnall

    Mr. Mullins, please remember, Mr. Emery spent his career in the public sector and has always been protected from competition. He has not had to struggle 24/7, like many small businessmen who are trying to compete with powerful unions and their nose ring politicians.
    Mr Wright, your example of Chic-Fil-A being principled is amusing. Here's a company that donated to the anti gay marriage campaign, made it public and, afterwards, their parking lots were a mess and they could not get enough chicken to their restaurants to feed the hordes that showed up. Once they hooked many on their product they silently faded into the background leaving the liberals, politicians and the government to deal with the issue, while reaping greater profits.
    Was that a principled strategy or just a good business plan?

  4. R. Wright

    So you're saying Chick fil A is actually PRO-gay marriage and donated to anti-gay marriage groups to increase profits?

    Whatever it is you're smoking, I want some of it!

    • Amy Roost

      No R. Wright. I think what Tom is saying is that Chick Fil A, like John Mullins, cares only about the bottom line, and would let the rest of us liberal sloths eat cake (and chicken). To which I say "Groovy!", so long as there's at least one free range organic chicken in every pot (wink wink), and Tom makes me that magic German chocolate birthday cake he's promised me.

      • Guest22

        I think it's the taxpayers' bottom line Mr. Mullin is thinking about. My take is that his profit margin will be the same, he just has to charge the governmental entity (i.e., we taxpayers) 30 to 35% more to cover the cost of a prevailing wage…even if that wage is not prevailing in the marketplace.

        I assume you also think that free range organic chicken in every pot should be supplied by the government, too.

        • Amy Roost

          Not supplied. Just regulated ;)

        • R. Wright

          And MY point is that he should not be making ANY profit from a program that he opposes so strongly that he feels compelled to argue against it in the press. If ,as Mr Mullin states, prevailing wages are "far from prevalent", he should have no problem finding sufficient non-prevailing wage work.

          • Guest22

            With all due respect, I think you're missing the point. Why should the government set wages just for their jobs? All it does is cost the taxpayer more to get anything done. i think we know the answer, of course, labor unions. The marketplace should determine wages, not a bureaucrat in Sacramento or DC.

            The cost to build "low cost" housing is double what it could be and the prevailing wage requirement is huge factor in that cost. It's your money, too…I would think you'd be concerned as well.

          • R. Wright

            Oh, I didn't miss the point. I was making a different point. It's right up there in my previous post, just after the part where I say "And MY point is".

            So what is your source for saying the cost to build low cost housing is "double"? Mr Mullin states that prevailing wage adds 30-35 percent, which makes it about 1/3 of the allegedly doubled cost. By my math, whatever makes up the other 2/3 is more accurately described as a "huge" factor.

            As a taxpayer, I am concerned about waste. As a principled individual, I am much more concerned about things more important than money.

          • Amy Roost

            R. Wright, some folks will always want it both ways. They're against prevailing wages unless it benefits them personally. Against Obamacare unless they get a rebate check in the mail from their insurance company or unless they can keep their 19-year old on the parent's insurance policy. However, I'm sure Mr. Mullin burned his rebate check, right John?

      • Dale

        Amy, have you lost it? :)

  5. Tom Yarnall

    Now Amy, I know my memory is a bit fuzzy, but I think I bet you the Republicans will retain control of the house come election day.
    If I lose I will pay my debt, but am unsure how to make or where to get an organic German chocolate birthday cake. My real dilemma is I don't know if eggs from an organic chicken are organic and vise versa. Do you know? Perhaps the butcher, who supplies me with those delicious marbled juicy steaks, bacon and pork chops, can direct me.
    Amy, finally we have something in common. We both spelled Mr. Mullin's name wrong.

  6. Hey, if a little bit is good a lot more is better. Lets make prevailing wage $1,000 an hour!

    It won't cost taxpayers a cent — government will pay for it!

    • Amy Roost

      No one is arguing for that Allen. Only you.

      • The point, Amy, in case you didn't get it (and I know you didn't) is that wage setting outside the free market causes job dislocation, and labor unions (and their bought-and-paid-for politicians,) either don't realize that or are unwilling to acknowledge that.

        When wages are artificially set, the market seeks relief in automation, part-timing or off-shoring. (Or, all three as is currently the case in the private sector.)

        Only governments, which have virtually unlimited access to the taxpayer's right-hip pockets through taxation, refuse to publicly acknowledge the economic reality of the collusion that takes place between labor-elected politicians and those politicians returning the favor through prevailing wage legislation.

        When the voters revolt and demand government accountability through open-sourcing of union government work to outside private competition, as they did in San Diego, the Union-Bought Filner slow-walked it into oblivion. Labor, again returned the favor by supporting him to THIS DAY!

        • Amy Roost

          So Allen, are you opposed to a minimum wage as well?

          • Yep!

            I am not in favor of setting wages, profits or prices.

            It's called "Free Market" You should look it up.

          • Amy Roost

            Allen,

            Why so condescending?

            A pure free market would argue against minimum wage. However, Adam Smith never advocated for a free market entirely regulation or restraint. His philosophy has been cherry picked–at minimum wage.

          • Tom Yarnall

            "The price of labour, it must be observed, cannot be ascertained very accurately anywhere, different prices being often paid at the same place and for the same sort of labour, not only according to the different abilities of the workmen, but according to the easiness or hardness of the masters. Where wages are not regulated by law, all that we can pretend to determine is what are the most usual; and experience seems to show that law can never regulate them properly, though it has often pretended to do so." (Source: The Wealth of Nations, Book 1, Chapter 8)

  7. Who mentioned Smith? Not I.

    Question: Do you favor fixing a minimum for profits?

    Prices?

    Or JUST wages?

    • Amy Roost

      Allen, Here's what I believe: In a state where it takes working 130 hours a week at minimum wage in order to pay the fair market rent on a two-bedroom apartment, (San Diegans would need to work more as the average rent is higher here), I believe that we as a society must find ways to ensure that people who are working don't end up homeless and on the street with their children.

      I believe if a prevailing wage makes up the gap or low income rental assistance makes up the gap or paying a higher minimum wage makes up the gap, then it is worth my paying a little more in taxes and a little more for my Big Mac in order to help others achieve a basic subsistence level of living.

      The gap between America's richest and poorest citizens is among the highest in the developed world. And that's not a good sign. In fact, historically, it's a sign that revolution is waiting in the wings. During periods when the very rich took home a much smaller proportion of total income — as in between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide lifted all boats. Wealthy people would do better with a smaller share of a rapidly growing economy than a large share of an economy that's barely growing.

      Just as I keep a lid on the dog food canister at home to keep my yellow lab from eating until she becomes sick, I believe capitalism sometimes needs to be stopped from its own excesses. I believe corporations should should stop buying back stocks to prop up share prices, or expanding production abroad, and instead use their record profits to build capacity in the United States.

      I believe that people who work their arses off should be able to afford rent and groceries.

      That's what I believe in Mr. Hemphill. That and long, slow, deep, soft, wet kisses that last three days.

  8. PeterD

    I took a look at the assembly analysis of the proponents of this bill and it reads more like a suspense novel than something that belongs in our government. Once you get past the "shadowy underworld parts," the bill essentially claims that raising wages will improve the quality of the work. This is really only true in a relative sense. So if the range of wages paid in an industry is $10-$100/hr, with $100/hr being the "living wage", you will generally get low quality work at $10/hr and high quality work at $100/hr. When the base pay is dictated to be $100/hr, you're getting $10/hr work done. Besides which, the level of quality of work is determined by the entity who ordered the work and thus pays the bill. If they don't like the work, they'll fire the contractor and find someone competent to do it. It's how a competitive market works.

    This is really just a power grab by the various unions that sponsored this bill. "Living wages" are basically union wages. Unions are political entities (and are paid to do things like this) and they need to remove some of the competition for government contract work. If you're a politician and a union company and a non-union company give the same, or nearly the same, bid on a project, you're going to go with the group that does best for you. But, on the other hand, if the non-union group doesn't need to pay union/living wages, its bid can be proportionally lower. Unless the politician wants the taint of corruption attached to their name, they'll have to go with the more competitive bid.

    When the government introduces price controls or wage limits, or whatever you want to call it, it distorts market conditions and there are long term consequences, usually in oversupply. When those controls eventually collapse through common sense (or enforced common sense – aka bankruptcy) there will be a glut of people who will need retraining, a lot of unnecessary strife, and pension eliminations.

    All jobs are not, and should not be, created equally. If your job doesn't pay what you want it to, do something else.

    On a final note, I was in a McDonalds drive through this past weekend and saw that they have replaced the person filing the drink orders with a robot. (which, BTW, looked to be doing a pretty good job) If people become too expensive, the winners will justly improve cost efficiency by replacing them with things whose "living wage" is ~11 cents/kWh.

    • I could not agree more. In this latest recession, unemployment among college graduates never exceeded 4.5% — which approximates zero unemployment because of gaps in job changes. Lower skill workers had, and have, very high unemployment rates and they will get higher because we now have robots that repair and build robots.

      Love your "living wage comment — I intend to use it in other venues. I'll give appropriate credit. The comment was spot on, and the "Living Wage" people are simply whistling past the graveyard.

  9. playstation

    who is this guy?

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