Friday, June 25, 2004

How Prevailing Wages Get Set So High.
So I learned a bit more about prevailing wage law today. Remember, prevailing wage law is the body of law that mandates that workers on public projects get paid the prevailing wage, which ends up being a multiple of the market wage (meaning that workers get overpaid on government projects, leaving us with the bill).

The question is how does the prevailing wage get set so high when it is supposed to mirror the market wage? The answer - the prevailing wage, although intended to mirror the market wage, is actually the single wage most prevalent in the market. In other words its not an average, or even a median - its a mode. An example of these definitions is as follows. Assume 5 numbers. 1,1,8,9,11. The average is 6, the median is 8, and the mode is 1.

With this rule in mind, unions make sure that all their workers get paid exactly the same wage rate, to the very penny. Private contract jobs will fluctuate around the market rate (which is lower), but will not EXACTLY equal it. The result is that the Union workers can only be 5% of the workforce and get paid $47.82 an hour, with the average wage (unions being taken into account) being around $23.03, and still the prevailing wage will be $47.82 an hour. This is because all the non-union workers pay $23.01 or $23.03 or $23.02 or $23.04 or $23.05 (you get the point) but rarely exactly the same as each other. In fact, if contractors tried to all set a common wage, it might even be price fixing and be an antitrust violation (I don't know on this last one).

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