Examining the Effects of Repealing Kentucky’s Prevailing Wage Law

January, 2017 started with the Kentucky legislature passing right to work legislation. This can also be described as repealing Kentucky’s prevailing wage law. It has become the 27th state to do so, one of four states to so do since 2012.

Workers are no longer required to join unions as a condition of employment, and state contracts can no longer mandate that employers hire union workers or pay union rates that are higher than the market would otherwise bear. There are points for and against this occurring, and we’ll address each in turn.

The Advantages Repealing the Prevailing Wage Law

By repealing the prevailing wage law, employers will be able to afford to hire more skilled tradesmen and line workers. Employment goes up and helps the local tax base, even if employers are able to pay less. For workers, ending the need to pay union dues may entirely offset this wage reduction. If you don’t pay 2% to the union, getting paid 2% less doesn’t hurt you.

A Heritage Foundation study also found that in right to work states, unions charge 10% higher dues and pay top officers about $20,000 more per year because workers don’t have a choice. By repealing the prevailing wage law, unions are forced to be accountable to members. And it reduces union corruption as a result.

States with right to work laws have seen higher job growth than those that did not, resulting in higher unemployment and welfare costs when a state’s population is growing. The preference then becomes to get people productive again, instead of focusing on fewer, higher paying jobs – and the 1.3% average lower unemployment rate for right to work states is attractive. And from the state’s perspective, the ability to get factories to relocate to Kentucky and bring significant income tax and property tax revenue and tens of thousands of jobs is more important than a few thousand union workers paid a few dollars less per hour.

When state contracts don’t have to pay out the higher wages mandated by prevailing wage laws, taxpayers save money on infrastructure projects. Ending union contracts in the workplace can improve workforce quality, such as eliminating first in first out layoff rules and instead letting companies fire the least productive workers. This issue in school union contracts creates the “dance of the lemons”, where schools let good young teachers go and reassign bad teachers because union contracts make it almost impossible to fire them even when budget cuts require headcount reductions. Employers that can cut the least productive workers see higher productivity on average, improving profitability and greater odds of staying in business.

The Disadvantages of Repealing the Prevailing Wage Law

If employers are not forced to pay the higher rates required by the prevailing wage law, they can pay these workers less. This typically results in an uptick in hiring for these skilled trades, but those working in these jobs will be paid several dollars an hour less. This is not always offset by greater availability of overtime. For the unemployed tradesmen, the promise of good pay offsets the potential promise of better pay when it becomes available. For those already working, the competition with lower paid workers leads to downward pressure on their wages. And greater labor market flexibility that decreases the time people spend unemployed between jobs doesn’t completely offset that lower pay.

There are concerns that if pay rates go down on average, it will drive skilled workers out of the workforce or encourage employers to hire less skilled workers, something that has the potential to impact the quality of work. Not everyone can earn an online civil engineering degree and move up to a better paying, professional job.

Observations about the Right to Work Laws

Unions have a reputation for very good health plans and other benefits. Workers can still choose to join the union for the health benefits and retirement plans they offer, and employers can still support the union to simplify workplace management. Apprenticeship and training programs offered by the unions remain available but may not pay as well. If you are earning a civil engineering online degree, your job is less likely to be impacted by the changes to prevailing wage laws unless you work on projects like building pipelines and highways.