Testimony before the Portland Development Commission on its Prevailing Wage Policy

Steve BucksteinThe Portland Development Commission (the semi-independent economic development arm of the Portland City Council) has resisted paying above market, government-mandated, prevailing wages on construction projects that involve some public funding but are primarily privately owned. Oregon’s Bureau of Labor and Industries is trying to convince PDC that it should pay prevailing wages on these projects.

Steve Buckstein’s testimony before the PDC commissioners came as they continue to wrestle with setting a formal policy on the prevailing wage issue.

Testimony before the Portland Development Commission
Construction Wage Study Work Session number 2

By Steve Buckstein
October 18, 2006

My name is Steve Buckstein. I’m a Senior Policy Analyst and founder of Cascade Policy Institute, a Portland-based think tank. We published a report last month titled Prevailing Wage Laws: Legislating Inequality.

I’d like to respond to just two points that the Bureau of Labor and Industries (BOLI) made in its presentation to you on September 20th.

First, BOLI told you, correctly, that the prevailing wage is actually a minimum wage that must be paid in certain cases. What you didn’t hear is that minimum wage laws have the very real potential to price primarily younger and minority workers out of jobs. Allowing some of these workers to participate in apprenticeship programs is admirable, but I don’t believe that makes up for the discriminatory policy itself.

Second, BOLI showed you a list of benefits it believes the PDC receives from paying prevailing wages. The third benefit on that list was “Provides higher incomes and increase the region’s standard of living.”

My question is this: Where do these higher incomes and better standard of living come from? There isn’t any free lunch in the economy. Every dollar paid above market wages is a dollar that can’t be spent or saved somewhere else. BOLI‘s claim can only be correct if paying prevailing wages represents the best use of those extra dollars in the economy.

The economic literature argues against this claim. PDC can’t know that any of its projects will do more to improve the overall standard of living in the region than purely private projects would. In fact, the literature makes a good case that government-directed projects often yield lower economic returns than private projects, for a variety of reasons.

Every one of your projects has what are called “seen” benefits. We can see the building, and we can see the wages paid to build it. But every project also has “unseen” costs. What wasn’t built, or what spending or investment didn’t happen because the government preempted those choices?

The literature is clear that those “unseen” costs” usually outweigh the “seen” benefits. That’s often the case because there are simply too many variables for any group of experts to make better economic decisions, overall, than people who are investing their own money.

Therefore, while prevailing wage jobs do make some workers better off, that “seen” benefit comes at the “unseen” cost of other workers being worse off, and at the expense of the region’s overall standard of living.

Finally, I understand that PDC may be devoting 30% of its funds toward building affordable housing. Given the simple fact that you can’t maximize all conflicting economic goals, I hope you consider that the more prevailing wage projects you agree to, the fewer affordable housing units you can afford to build.

I know that PDC must follow the prevailing wage law when the projects clearly meet the guidelines. But when the projects are primarily private in nature, I urge you to resist paying prevailing wages.

Thank you.

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