Employment effects of prevailing wage laws

Abstract

State prevailing wage laws require that construction workers hired by private contractors on public works projects be paid minimum wages equal to corresponding market wages within a given locality. This analysis uses individual-level data from the Current Population Survey and state-level data from the Bureau of Economic Analysis and Bureau of Labor Statistics to estimate effects of prevailing wage laws on construction worker employment. The empirical strategy exploits the repeal of ten states' prevailing wage laws from 1979 - 1995, incorporating both contemporaneous and lagged effects. Findings include a five to nine percentage point probability increase in construction worker employment associated with repeal of prevailing wage laws. Extended analysis includes estimates of differential effects for groups of construction workers by skill-level and race. Findings suggest a strong positive employment effect for construction workers in general, with little evidence to suggest that sub-groups of construction workers are differentially affected by race or skill-level. Exceptions include a five percentage point decrease in probability of construction employment associated with Hispanic workers after three or more years, and an eleven percentage point increase in probably of employment associated with laborers within the first two years of repeal.